E85: SBF's crypto bailout, Zendesk sells for ~$10B, buyout targets, US diplomacy, AlphaFold & more

00:00:00.000 | Let's go, Jason, start. Let's go. Do you have any intros? Let's go. Let's go. Let's go.

00:00:02.880 | Let's go. All right. If you want intros,

00:00:04.320 | we're not willing to pay for them. So don't even go there.

00:00:08.080 | Zach is awake. All right. Well, we'll start with you.

00:00:12.400 | Sacks. If you want to do your job, you'll do the intros. And if you want to,

00:00:15.680 | if you want to slow roll your effort, because you think you're negotiating with us,

00:00:19.760 | don't, we don't give a shit. Listen, I'm doing all the projects. I think we care about your intros.

00:00:25.120 | Do a bad job. We don't care. Waiting in the wings. All we do. Well, then I'll just do three

00:00:32.480 | sacks intros in a row. Oh my God. It's so true. Do a couple of bad jobs so that we can boot you off

00:00:37.600 | the show. Oh, that'll be so cool. All right, here we go. Let your winners ride. Rain man, David.

00:00:45.600 | And it said, we open source it to the fans and they've just gone crazy.

00:00:52.240 | Queen of Kinwa.

00:00:54.960 | I'm going all in.

00:00:57.360 | All in summit. I packed the joint, but Sacks won't give me an extra point.

00:01:01.920 | His crypto holdings, they can't find a floor. Going to have him flying commercial for the

00:01:06.320 | first time since 2004. Welcome David Sacks back to the program, the Rain Man.

00:01:11.120 | Good to be here.

00:01:11.680 | Now, Freeburg, I never wanted to see him go, but you got to show up for work. You

00:01:16.160 | can't do every other show. The Sultan of Science, he's certainly not a fad. But then again,

00:01:21.120 | did you see those ratings with Brad? Welcome back, the Sultan of Science.

00:01:24.480 | By the way, our show beat Brad's ratings. So thank you very much, J Cal.

00:01:29.680 | Yeah, okay. Well, a little drama always builds a little audience. Okay, here we go.

00:01:33.680 | Chamath.

00:01:33.920 | A little healthy competition.

00:01:35.120 | Well, Chamath, he's in Italy living a life so grand. His next SPAC,

00:01:38.960 | a luxury wine and sweater brand. This market is leaving him in a daze.

00:01:43.120 | So he's been tipsy in the Mediterranean for the past 10 days. Welcome back, the dictator.

00:01:47.360 | Thank you.

00:01:48.080 | I just, I put them on stun. I didn't want to do any kill shots there.

00:01:52.960 | Since everybody's on stun.

00:01:53.120 | I just, I put them on stun. I didn't want to do any kill shots there.

00:01:53.200 | I just, I put them on stun. I didn't want to do any kill shots there.

00:01:53.200 | Since everybody's a little on edge, including the audience. The audience had a lot to say

00:01:58.880 | about whether we cover a lot of the controversial topics. Roe v Wade, January 6, and Ukraine,

00:02:06.400 | all I did a bunch of surveys, 50% of people want us to talk about it 50% don't. So we'll see which

00:02:12.560 | ones we get to say. Yeah.

00:02:13.760 | Do you think we should be surveying the audience to ask them what they want us to talk about?

00:02:17.760 | Because when we started the show, we just talked about stuff that we thought was interesting.

00:02:21.200 | Sure.

00:02:21.440 | And people happen to like it and

00:02:23.040 | listen and tune in for it. If you end up asking the audience what they want, don't you end up

00:02:27.280 | becoming like a Fox News or like any other media company where you just ultimately use the feedback

00:02:33.280 | loop to drive?

00:02:34.080 | Yeah, I wouldn't. Every week of the show, I will tweet like, hey, anything you want on the docket,

00:02:39.120 | because sometimes people will have good ideas. But yeah, certainly you shouldn't base it on like

00:02:44.240 | a survey. No, I think it was just like a way to get some feedback.

00:02:47.520 | We were just, yeah, that's how we started was we were just kind of being intellectually honest with

00:02:51.440 | each other and curious about stuff we were interested in.

00:02:52.880 | And it worked. And if people don't like it, they don't like it. I mean, I don't think we should

00:02:57.280 | the big controversial thing like a like a vote for your topics. And that's what we follow.

00:03:01.120 | Definitely not. We should I think we'll agree on that. I think just there is an ongoing debate

00:03:04.880 | amongst the audience of what percentage of this show should be politics and when should we talk

00:03:09.040 | about politics? And are we doing too much politics? And so I mean, let's start with markets.

00:03:13.600 | Let me ask you one more question. Do you think our objective should be to grow the audience?

00:03:16.560 | Or should our objective to be talking about the things we want to talk about?

00:03:19.200 | Yeah, what do you think?

00:03:19.920 | I mean, what do you think, Sax?

00:03:21.280 | Yeah, I don't think it's a good idea to pull the audience.

00:03:22.720 | But we want to talk about the audience. Yeah.

00:03:27.200 | Well, I think it's good to have an audience. Otherwise, what are we doing? But yeah. But look,

00:03:32.800 | what the audience showed is that half of them wanted to talk about those topics roughly and

00:03:36.160 | half didn't. I suspect that most topics are going to be like that, you know, unless it's just markets

00:03:42.400 | and people are like, I think 80 90% of people want to hear us talk about markets and startups.

00:03:46.880 | Yes. Like our core stuff, right, David?

00:03:48.720 | I'm just saying if your objective function is to maximize your audience, you're gonna end up

00:03:52.560 | making a tick tock video of people twerking or something. You know, it's not like the show.

00:03:56.960 | Did you just volunteer to twerk on the show?

00:03:58.880 | I'm not gonna do that now.

00:04:00.000 | I think I'm pretty sure it's from awful. I have the video of free bird twerking at

00:04:06.880 | all in summit anyway. Oh, hey, who? All right, let's get started with I think what's going on

00:04:12.560 | in crypto because people do want to hear about that. And it's been quite stunning. A British

00:04:16.720 | Virgin Island court ordered the liquidation of three arrows capital three AC after creditors sued

00:04:22.400 | the crypto hedge fund for failing to repay its debt. They had 3 billion in assets under management.

00:04:27.280 | They had a huge position in the now defunct stablecoin Terra and its token Luna. And they

00:04:34.800 | were trading on some massive amount of margin, how much and what deposits they were using to do this.

00:04:41.520 | We will find out. Now they're being forced to liquidated to be

00:04:46.400 | liquidated three AC owed Voyager Digital 650 million could not pay it which sent Voyager

00:04:52.240 | stock down 60% and caused them to need a bailout from Sam Bankman freed, which has led to SBF as

00:05:00.800 | he's known in the industry bailing out a couple of other major folks in crypto. He provided a $200

00:05:06.400 | million credit line to Voyager Digital. This is a Canadian crypto lender, they'll lend you money

00:05:11.760 | against your crypto. And FTX provided a $250 million credit line to block fi FTX is obviously

00:05:20.080 | SPF company.

00:05:22.080 | And according to early block fi investors, the FTX credit line would wipe out all existing

00:05:27.120 | shareholders. So we're starting to see the really onerous term sheets to keep these things alive.

00:05:33.040 | This is of course in the face of an entire crypto collapse. With many crypto coins seeing what we saw

00:05:39.680 | in growth stocks. Is this the end of crypto? Is it going to rebound again? What are your thoughts?

00:05:48.160 | Jamal Sachs Friedberg who wants to start on crypto? Did you guys see the

00:05:51.920 | chart that I posted into the group chat that showed Bitcoin activity as a function of year

00:05:58.960 | and value? Nick, can you just put that up just so that we can look at that together?

00:06:02.160 | The crazy thing about this chart when you look at it is, and it's pretty obvious is that we

00:06:06.720 | are collectively in one way, shape or form basically trading up

00:06:10.960 | ever since 2018, really with all the stimulus because if you look at,

00:06:16.080 | you know, the mean price of Bitcoin, 2018, it was a nothing burger. You know what we were talking

00:06:21.760 | about was, you know, a price that was sort of between a few thousand dollars to 3000,

00:06:26.720 | 3000, you know, and then all of a sudden, when all of this stimulus money hit the market,

00:06:32.640 | look what happened to it. But I think something unique also happened, which is that people really

00:06:38.160 | understood how to run these very complicated off chain Bitcoin arms. And I think we should explain

00:06:45.760 | what those are, because those are what's behind the three arrows capital it's behind, you know,

00:06:50.800 | I think Sam had

00:06:51.600 | this kind of oblique tweet that said, you know, some of these exchanges are actually already

00:06:57.600 | in salt, but they're already the walking dead. So the first thing to keep in mind is that, you know,

00:07:02.160 | this is a completely unregulated market, right? There are no middle maker, market makers per se,

00:07:08.160 | that actually have reporting requirements to any regulatory authority. There aren't

00:07:11.840 | any clearing houses, there isn't a way for us to understand systemic risk,

00:07:16.320 | as it builds in the crypto market. So what happened starting in 2018 and 19 is people

00:07:21.440 | realized the following things were true. It's sort of what we talked about last week,

00:07:25.760 | you go and do some crazy round, you, you know, mark up some phantom equity in a company,

00:07:33.040 | that company then issues tokens, you then list the tokens, not on, you know, a blockchain per se,

00:07:40.240 | obviously, but in a place where trades can happen off chain, right? And there's a bunch

00:07:46.880 | of exchanges where these things happen off chain, because it's one, you know,

00:07:51.280 | a company and then they have a bunch of segregated sub accounts. And what happens is when these

00:07:56.800 | things initially get listed, retail goes crazy, the price goes up, folks basically dump on retail.

00:08:02.000 | And, you know, you spin that loop as fast as you can, and you can extract an enormous amount of

00:08:08.640 | money. Along the way, all these things like DeFi all of a sudden popped out of nowhere. And it's

00:08:13.840 | like, hey, you can earn 15, 16, 17, 18%, just deposit the Bitcoin. And so folks would deposit

00:08:19.520 | Bitcoin. But then you have a bunch of segregated sub accounts. And then you have a bunch of segregated

00:08:21.120 | DeFi accounts. And then you have a bunch of segregated DeFi accounts. And then you have a bunch

00:08:21.680 | of segregated DeFi accounts. And then you have a bunch of segregated DeFi accounts. And then you

00:08:22.160 | have a bunch of segregated DeFi accounts. And then you have a bunch of segregated DeFi accounts. And

00:08:22.400 | the places where those deposits were held, but then need to obviously find places to make that

00:08:27.200 | 11, 12 or 13%. And so then they would go off chain to some other random person who was offering to

00:08:33.520 | pay them even more than that, and they would try to arm the difference. But it all catches up with

00:08:38.400 | you. Because when something like a Terra goes to zero, all the Bitcoin that was used to basically,

00:08:44.640 | you know, run that DeFi process around Terra vanishes.

00:08:50.960 | You know, and then all of a sudden, you the lender are like, Hey, can I have my

00:08:54.480 | Bitcoin back? And the broker is like, Well, actually, I don't have it, I lent it to somebody

00:08:59.680 | else. Let me ask that someone else. And they're like, I'm sorry, I don't have it. But I have these

00:09:03.920 | Terra coins, you know, because I was running some arm, and now went to zero. And that's essentially

00:09:09.120 | what we're seeing right now. So we have two big problems.

00:09:13.200 | And then I think we have a third that's kind of funny. The first big problem is like,

00:09:16.720 | obviously, in the absence of any regulatory oversight, this stuff is going to happen.

00:09:20.800 | And then the second big problem is that the system is going to be a little bit more

00:09:25.280 | complex. And then the third big problem is that the system is going to be a little bit more

00:09:28.480 | complex. And then the fourth big problem is that the system is going to be a little bit more

00:09:31.360 | complex. And then the fifth big problem is that the system is going to be a little bit more

00:09:34.080 | complex. And then the sixth big problem is that the system is going to be a little bit more

00:09:36.720 | complex. And then the seventh big problem is that the system is going to be a little bit more

00:09:39.440 | complex. And then the eighth big problem is that the system is going to be a little bit more

00:09:43.040 | complex. And then the seventh big problem is that the system is going to be a little bit more

00:09:46.560 | complex. And then the eighth big problem is that the system is going to be a little bit more complex.

00:09:50.640 | have the keys to their own Bitcoin, they gave money to a custodial account, they then did this

00:09:56.880 | lending went out to get them to 15%. And they don't have any recourse here. They can't get their

00:10:03.840 | bill. Look at this. Bitcoin owners, put them in a wallet and own the keys. Does anybody have recourse

00:10:09.200 | to this three arrows capital and all of this other interrelated parties that are now you know, gone

00:10:14.560 | completely bankrupt because of this scam? The answer is absolutely not. So that's the first

00:10:20.160 | problem.

00:10:20.480 | You have absolutely zero oversight, which means systemic risk has been built up in the system.

00:10:25.280 | The second thing is that exactly what you just said, Jason, is that people don't even understand

00:10:32.160 | chain of custody here, which is that you thought that you own this Bitcoin, it turns out you

00:10:36.240 | actually may not actually own them at all. You thought that you were properly lending them out.

00:10:40.400 | You actually don't. There is no enforceable contract, it turns out. And so I think that's

00:10:45.360 | going to be an entire set of different legal issues that are now going to come to the service,

00:10:50.320 | because people who actually legitimately lent this stuff out, for example, like if you short

00:10:54.640 | a stock and you go and borrow stock from any one of us, they're really tight guardrails.

00:10:58.960 | Jason Lowery : If you wanted to go and put a credit

00:11:00.720 | derivative swap on against debt, there's a central clearinghouse that makes sure you're not

00:11:05.120 | over levered. You have to go and get audited by a bank to even get the kind of account that allows

00:11:10.320 | you to put these derivatives on. None of that was possible in crypto. And then the last thing,

00:11:15.680 | which I think is kind of funny, is that we've had to listen to every millennial and

00:11:20.160 | Gen Z market observer in crypto tout how this is not like boomers, and they turned out to be the

00:11:26.240 | same thing. I mean, this is the funnest thing of all. It's like of all of the times you've had to

00:11:32.320 | hear how it's so different, it turns out it is entirely the same. Entirely, entirely. In fact,

00:11:38.560 | worse. Preston Pysh :

00:11:38.960 | The custodian issue is definitely a major one. Sax, what do you think is happening in crypto

00:11:44.080 | right now? Sax Gatlin :

00:11:44.640 | Price is obviously going down a lot. I don't really have a new point of view on it.

00:11:50.000 | Preston Pysh : I'm mainly pissed off that SBF is trying to

00:11:52.560 | raise my taxes in California. Sax Gatlin :

00:11:55.280 | Explain that. Preston Pysh :

00:11:56.160 | Sam Bankman-Fried, he runs FTX and his company, he lives in the Bahamas. Okay. And there are probably

00:12:03.760 | reasons for that related to liability or taxes or something like that. Sax Gatlin :

00:12:07.040 | Can you tell us what FTX does? Preston Pysh :

00:12:08.720 | They're like a Coinbase competitor, but they obviously think it's beneficial to be offshore

00:12:12.560 | and not under US jurisdiction. Sax Gatlin :

00:12:14.400 | And they're very profitable, right? Preston Pysh :

00:12:16.480 | Yeah. Supposedly they're super profitable. I mean, he's worth like $10 or

00:12:19.840 | $15 billion. This is my understanding. So he's been very successful at this. I don't know why

00:12:25.920 | they're in the Bahamas. I think either they're in there for securities regulation reasons or for tax

00:12:30.720 | reasons, but it's one of those two. In any event, he doesn't live in California and yet

00:12:35.040 | he is sponsoring a ballot initiative here that would add a 0.75% tax

00:12:42.560 | on incomes over 5 million to finance a pandemic prevention institute of his design. He's

00:12:49.680 | doing this with Dustin Moskovitz, another billionaire who doesn't know what to do with

00:12:52.640 | his money. He may remember that Dustin was the guy funding Jason Boudin. In any event,

00:12:57.840 | this would be this pandemic prevention institute would be governed by an unaccountable board

00:13:02.000 | as opposed to something like the University of California.

00:13:05.920 | This is like them using the ballot initiative system to fund their pet philanthropic projects.

00:13:12.800 | I mean, there's really no need for this. I mean, first of all, this is-

00:13:15.040 | Sax Gatlin : Sounds like something that should be done federally.

00:13:16.880 | Preston Pysh : Yeah, exactly. Well, first of all, it's looking in the rear view,

00:13:19.520 | your mirror in terms of like a budgetary priority. But even if you believe this was a priority,

00:13:24.720 | I don't know why it'd be the responsibility of California taxpayers exclusively. And even if it

00:13:29.920 | was, you'd want to do it under say the UC system, some sort of accountable board, as opposed to

00:13:35.280 | having a report to Sam and Dustin. So it makes no sense. And this is really going to hurt the

00:13:42.080 | California tax base because if you start raising taxes on California millionaires,

00:13:49.360 | more of them are going to leave the state and then that tax revenue leaves the state.

00:13:53.680 | And so it actually hurts the general budget. And that's why California teachers association,

00:13:59.040 | for example, opposes this is because they know that this is going to have

00:14:03.040 | a negative impact on core services. But what's offensive to me is, I mean, so first of all,

00:14:08.480 | this is just a stupid idea in like every possible way, but what is a guy who lives

00:14:13.520 | in the Bahamas doing funding ballot initiatives in California to raise our taxes, thereby worsening

00:14:19.200 | the California fiscal situation to fund his pet philanthropic projects. If you're worth 10 billion,

00:14:24.640 | just fund it on your own, you know, do it through your family foundation. I don't know why you need

00:14:29.280 | to raise the taxes on all of us. Yeah, that's very bizarre. Why is he giving?

00:14:35.760 | Well, the simple answer is because I think it helps curry favor with politicians that he needs

00:14:39.600 | for other things. That's why you would do it. That's why I would do it.

00:14:44.000 | This is currying negative favor because first of all, every millionaire in California,

00:14:49.040 | I think, should be up in arms over this. But even I'd say,

00:14:52.640 | I don't think we know his game plan.

00:14:54.480 | Yeah, I mean, but I'd say even liberal politicians and interest groups in California,

00:14:59.920 | like the like the teachers association don't want this because the money's not going to a cause they

00:15:06.320 | support. And it will probably it will almost certainly drive down the state's tax base, right?

00:15:13.680 | Because people on the margins are going to leave. We already have the highest taxes in the nation.

00:15:18.880 | 13.3% for the top end, we have $100 billion surplus for a reason all these IPOs, all of these

00:15:25.600 | venture capitalists, CEOs and rank and file tech workers are just paying massive amounts of tax here

00:15:31.360 | and they're leaving, right, but that's highly levered to capital gains, right. And so last year,

00:15:36.240 | we had a boom market, we now know in hindsight that it was inflated.

00:15:40.080 | That was all driven by this liquidity bubble. So do you think that's gonna be the case this year,

00:15:44.800 | I think we're due for a huge budget shortfall next year, because there's

00:15:48.720 | going to be no capital gains, they better hold on to that 100 billion for sure.

00:15:52.000 | The California tax base is highly leveraged to this boom bust cycle.

00:15:55.520 | And driving the top earners out of the state is only going to worsen that impact. So, you know,

00:16:02.080 | but again, I question why is a guy in the behind? It'd be one thing if it was just

00:16:05.600 | Dustin doing it, I guess, but I don't understand why Sam's taking the lead when he's not even a

00:16:10.800 | California taxpayer, because I think he's a very sophisticated player in not just crypto,

00:16:18.560 | but frankly, regulated and unregulated finance. And look, he, I think he spends a lot of money

00:16:25.280 | in DC as well. And I think that he has a very thoughtful game plan. And then, you know,

00:16:30.720 | when you look at who his parents are, his parents are really, really smart, thoughtful people as

00:16:35.280 | well, two law professors at Stanford. And so I suspect not knowing and having spoken to him,

00:16:41.360 | that I think that there's a really specific strategy that these guys have around who they need

00:16:48.400 | to influence and what they care about, and then willing to, as a pass through fund those things

00:16:55.920 | in order to create the, you know, influence that he needs for the things that he cares about.

00:17:00.320 | And I suspect that it's that kind of horse trading, which is, I think it's pretty typical

00:17:04.080 | in US politics. The question though, is what will happen if FTX has to really talk about, you know,

00:17:13.120 | everything that's actually happening in crypto crypto. I'm sure that FTX could do a lot to help

00:17:18.240 | a lot of this off chain activity, some of the, you know, especially the stuff that's really in

00:17:24.000 | the gray, especially the stuff that's going to come to light over the next few years is,

00:17:27.680 | I mean, you have to understand guys, like, you know, we've torched $2 trillion. And it's not

00:17:32.000 | of institutional capital, you know, this is overwhelmingly retail capital.

00:17:35.760 | All of this is going to inspire a lot of district attorneys and DOJ activity,

00:17:42.960 | the discovery is going to be bonkers, and it's all going to be regulated to the point of in which it

00:17:48.080 | kills a lot of the opportunity, I think this is going to become the most regulated space.

00:17:53.040 | I mean, I if the goal here was to curry favor, then I think Sam must think there's not gonna

00:17:59.440 | be a red wave in November, because I don't think Republican politicians are going to look very

00:18:03.680 | favorably on a guy who's using his money to raise taxes in a state he doesn't even live.

00:18:10.400 | All right, let's move back to the crypto piece.

00:18:12.320 | Let's move back to the crypto piece here.

00:18:14.880 | That's the bigger thing, that's the bigger thing, not a few million dollars of

00:18:17.920 | lobbying. At this point with this many retail investors, well, actually, let me let me start

00:18:22.240 | with this Friedberg. Is there a real technology here? And how much of what we've just witnessed

00:18:27.920 | with this crypto collapse in the crypto boom bust cycle? How much is this based on what you would

00:18:32.400 | perceive as real technology that is going to advance the human species forward? And how much

00:18:38.160 | of this was hype if you were to put a percentage on it, you know, trillions of dollars in assets,

00:18:42.720 | you know, created and then wiped out? How much of this was actually real technology?

00:18:47.760 | How much of it was complete utter waste of fucking time? And a grift?

00:18:52.080 | I'm no crypto expert. And I've not been an investor in crypto currencies.

00:18:56.800 | I read the original Bitcoin white paper.

00:18:59.760 | Makes sense. Bitcoin itself, to me makes sense as a potential. Initially,

00:19:08.640 | it was kind of interesting as a potential alternative currency, but the transaction fees

00:19:12.160 | were very high. And so it never really seemed to make sense as a replacement for traditional

00:19:16.640 | financial networks.

00:19:17.600 | Until those transaction fees dropped below those of the traditional financial networks.

00:19:22.320 | And the biggest concern I've always had, which I've mentioned multiple times on the show,

00:19:27.920 | is that whenever anyone talks about a quote, cryptocurrency, they talk about the price of

00:19:35.920 | it in dollars. And if it really is meant to be an alternative to the US dollar,

00:19:41.040 | why are you talking about it in the price of US dollars, and it's up and it's down relative to

00:19:47.440 | dollars. And that implies ultimately that the intention would be to transact back to US dollars,

00:19:52.880 | which implies that the intent is not to be a replacement for the US dollar, which was a lot

00:19:59.600 | of the early prognostication of Bitcoin was it was going to be a replacement for the US dollar,

00:20:05.440 | it's going to be an alternative to traditional monetary systems. But ultimately, if you're just

00:20:09.760 | measuring this in dollars, and it's up and it's down, everyone's freaking out every day about

00:20:13.120 | cryptos up cryptos down. That means it really is more like a security. And so I think that's a big

00:20:17.280 | concern. I think that's a big concern. And that's a big concern. And I think it's a big concern. But

00:20:19.280 | I think it's a big concern. And I think it's a big concern. And I think it's a big concern. But I think

00:20:20.160 | it's a big concern. And I think it's a big concern. And I think it's a big concern. And I think it's a

00:20:22.960 | big concern. And I think it's a big concern. And I think it's a big concern. And I think it's a big

00:20:23.440 | concern. And I think it's a big concern. And I think it's a big concern. And I think it's a big concern.

00:20:24.720 | It's not actually a security because it doesn't provide you a security interest in anything.

00:20:28.640 | So it is effectively a bet on some systems of computers that are meant to facilitate some

00:20:34.240 | set of activities that, you know, ultimately, people really only seem to value in US dollars.

00:20:40.640 | So, so I don't know, I mean, like, where does it all go? It seems like I mentioned

00:20:45.840 | at our predictions episode last year, that all of these smaller things are going to get blown out

00:20:50.800 | these quote unquote, cryptocurrencies, even though many of them don't really act like a currency.

00:20:54.960 | And, you know, maybe Bitcoin itself persists. And it seems to me like that's always going to

00:21:00.000 | have good staying power. As an observer, I'm not a participant. And, you know, anytime someone

00:21:06.880 | telling you something's in dollars, and it's going up, and it's going down, and you're betting on

00:21:09.840 | whether it's going to go up or not, you're going to be in trouble. And you're going to be in trouble.

00:21:10.480 | up or go down, and your intention is to transact back to dollars. You know, and there's no one

00:21:15.600 | there's these have been securities. This is the problem. This is the problem I have with it. This

00:21:20.720 | has been, you know, a shadow securities stack that was created in parallel to the existing one with a

00:21:27.200 | lot of, you know, oversight. And what did we think would happen if you created a global casino with

00:21:34.720 | no rules, other securities have an underlying interest in something this has an underlying

00:21:38.800 | sure interest in

00:21:40.320 | some line on the blockchain of that particular network.

00:21:43.440 | That's exactly that's exactly what it has.

00:21:45.600 | Yeah, it's a secured interest in a line of code in on a distributed.

00:21:49.760 | It's it's it's it has a secure a Bitcoin has a legitimate, non fungible entry in a blockchain

00:21:58.080 | that says it and only it represents that thing. And I think that that, you know, is I guess that

00:22:03.920 | the the link security interest, some may call it tenuous. But I mean, I tend to think at this point,

00:22:09.520 | Bitcoin,

00:22:10.160 | probably has to be regulated like a security even, even if it is not, and it's more of a commodity

00:22:17.760 | only because of the volume and the sheer size of both the market and the potential fallout is the

00:22:24.720 | way you're saying it, right? The potential fallout when things go off the rails is so great. You kind

00:22:29.040 | of need to have some rails. Yeah, I mean, I mean, like, like, again, as I've said, like, look,

00:22:33.520 | if you're a market participant trying to trade, you know, very sophisticated, you know, derivatives of any kind,

00:22:40.000 | for example, in the credit markets, we have to go and we create these things called ISDAs,

00:22:45.440 | they're called ISDAs, you know, and it's basically a kind of an account that allows us to go and,

00:22:49.840 | you know, take risk in some of these very esoteric markets. But the underlying principle around that

00:22:56.400 | is a common set of parameters, a clearinghouse, the ability to monitor risk, none of those things

00:23:02.480 | exist here. And I think that's really what folks have to solve for now. Secondarily, is what were all these kind

00:23:09.840 | of like shadow activities, you know, it just it turned, you know, it seemed too good to be true,

00:23:15.120 | when you would hear, wow, this DeFi protocol will yield you 24%. And you're just like, who was paying

00:23:20.480 | the 24%? It never made sense, really, but then none of us really questioned it. You know, I, you

00:23:26.000 | know, I had people on this week in startups, I questioned it all the time, and they could never

00:23:29.280 | explain it to me. And then now the explanation was, well, we were giving you we were giving short term

00:23:34.000 | loans to other people who basically wanted a margin loan, you know, they want to hodl their Bitcoin,

00:23:39.680 | but that was only four or 5%. What they were also doing was giving you tokens in some other

00:23:44.880 | cryptocurrencies, that they were basically originating. So they basically were like, we'll

00:23:49.440 | give you 4% on your Bitcoin loan, somebody else will pay that, you'll pay that. But then the other

00:23:55.520 | 11% is coming from some tokens we're giving you that actually, you know, you have to airline miles,

00:24:01.760 | we have to give you airline miles,

00:24:03.360 | we have to answer a really important question. If you we've we, you know, look, the the markets have

00:24:09.520 | incinerated many trillions of dollars, I just saw like, for example, there was 1.7 trillion,

00:24:16.160 | you know, that was just torched in ETFs alone, just in the business the beginning of this year,

00:24:21.440 | right? We've done that or more. In the crypto side. We've done that or more on public equities,

00:24:29.600 | right? We're probably going to do that or more in other markets, but every other market is regulated.

00:24:33.760 | And there's a full accounting of the P&Ls and the dollars that are won and the dollars that are lost.

00:24:39.920 | And here, some folks have just, you know, basically escaped with billions and billions

00:24:45.280 | and billions of dollars. And the bag holder is just, you know, a retail investor. So the real

00:24:51.440 | question is, are regulators going to actually care to try to do something because the level of

00:24:57.920 | grift that's happened in this market is extreme. And especially when especially when everybody was

00:25:04.240 | telling you, no, this time is different. This market is completely different. It's transparent.

00:25:09.200 | It's on chain, you can see everything. And it turns out actually, most of it was not on chain,

00:25:13.120 | it was off chain. And they were using they were using this, hey, have fun being poor,

00:25:19.440 | this like psyops to get you to participate. Okay, boomer, you don't get it.

00:25:23.200 | Gensler was talking to Kramer on CNBC, here's the quote, some like Bitcoin,

00:25:28.640 | and that's the only one Jim, I'm going to say because I'm not going to talk about

00:25:32.160 | any of those these tokens that my predecessors and others have said are a commodity. And then he

00:25:39.040 | said, many of these crypto financial assets have the key attributes of a security side from Bitcoin,

00:25:44.960 | he believes, you know, like these things are securities. And that makes sense, because 99%

00:25:49.200 | of people buying them sacks, we're buying them, because they wanted to see them appreciate they

00:25:53.440 | were never using these as utility tokens, they were buying them to, you know, I see them

00:25:57.920 | appreciate and to flip them. So what do you think sacks? Is there? Is there when we look back on

00:26:02.000 | this whole mess in 10 years? Is it going to be like the dot com era? We're like, yeah,

00:26:05.600 | I got overheated, but Amazon and Google came out of it? Or are we going to look at it and

00:26:08.880 | go? Well, that was tulip season? Well, I think there is a future technology platform here with

00:26:16.160 | crypto. But I mean, I've been saying this for the last year that just because there's a future

00:26:22.400 | technology platform doesn't tell you what the pricing should be. And the price action got

00:26:26.400 | decoupled from the level of progress in the space. You know, you should always be looking at what is

00:26:32.160 | the real usage, use cases, customers, revenue, things like that. And, you know, I think that's

00:26:39.440 | people stop doing that. And I think part of the reason why the narrative was so powerful,

00:26:43.360 | if you go back to last year, then the chart that Shamos showed about the the increase in the price

00:26:49.760 | of Bitcoin, which is really the root of everything, right? Because, you know, first Bitcoin

00:26:54.800 | appreciates. And then if you think about it, like Ethereum is, Ethereum market cap is like a

00:27:01.520 | derivative of the Bitcoin market cap, it's been roughly 40%. And then the altcoins sort of get the

00:27:08.080 | market cap of the year. And then you get Bitcoin and Bitcoin. And then you get Bitcoin and Bitcoin.

00:27:08.560 | The altcoins is sort of derivative of Ethereum's market cap. So the whole thing kind of moved up in

00:27:13.600 | sync. And the reason why Bitcoin moved up so much is that as the Fed kept printing more and more

00:27:19.520 | money, you had fans of Bitcoin saying, look, the Fed is debasing the US dollar, we're going to need

00:27:25.360 | an alternative currency. That was a powerful narrative that the Fed seemed to be vindicating.

00:27:31.360 | And there was a positive feedback loop, which is the more the Fed debase the currency, the more

00:27:37.520 | that the price of Bitcoin will go up. And that's what we're seeing. And that's what we're seeing.

00:27:38.400 | And that's what we're seeing. And that's what we're seeing. And that's what we're seeing. And

00:27:38.480 | that's what we're seeing. And that's what we're seeing. And that's what we're seeing. And that's

00:27:38.880 | what we're seeing. And that's what we're seeing. And that's what we're seeing. And that's what we're

00:27:39.440 | seeing. And that's what we're seeing. And that's what we're seeing. And that's what we're seeing.

00:27:39.520 | Now, the reason the price went up was not because they were debasing the currency, it was because

00:27:44.400 | they were creating so much liquidity, that that they created a liquidity effect that then drove up

00:27:49.600 | the price. And so consumers had money that they could buy Bitcoin because there was more money in

00:27:54.880 | the system. Yeah, you saw more buyers of Bitcoin. That's exactly what happened. I mean, all of this

00:28:00.560 | idiotic narrative. Sorry, go ahead.

00:28:02.400 | Yeah, you saw an increase in speculative investments across the board,

00:28:06.000 | including but not limited to crypto. So again, you know, when the Fed prints too much money,

00:28:10.480 | it creates asset bubbles. But there's a powerful reinforcement because as the Fed was printing,

00:28:16.720 | Bitcoin and supporters of Bitcoin had a really great explanation for why Bitcoin was going up,

00:28:21.520 | which is they're destroying the US dollar, we're going to need an alternative soon. Now, I think in

00:28:26.000 | the very, very long term, could Bitcoin be a non fiat currency? Yes. I mean, I actually think the

00:28:31.920 | technology is going to be a little bit more expensive. But I think it's going to be a little

00:28:32.240 | bit more expensive. I think it's going to be a little bit more expensive. But I think it's going

00:28:32.400 | to be a little bit more expensive. But I think it's going to be a little bit more expensive.

00:28:32.960 | works, you could create a new kind of currency that's backed by math and by

00:28:39.120 | cryptography as opposed to fiat government. But that could take a really long time. I mean,

00:28:44.160 | that could be decades in the future. And but what happened is the market started thinking,

00:28:48.800 | well, that's going to happen soon. And that's where it just got ahead of itself. That was the

00:28:52.560 | tulip part of it. Yeah, I think that I think that they

00:28:56.000 | found all of these words, you know, written in these economic textbooks, that allowed them

00:29:02.080 | frankly, to justify what a lot of people were doing in a lot of other markets, which is just

00:29:05.760 | straight up speculation, because the money printer was going. And you know, if the if you look at

00:29:11.920 | this 92% correlation to the equity markets, I suspect in Bitcoin, and crypto is probably

00:29:17.600 | closer to the even 100%. Because it really was the furthest out on the risk curve. And it just

00:29:23.680 | made the most sense when you thought money was, you know, effectively infinitely going to be

00:29:27.920 | available to just buy the riskiest risk assets. Think about the friction,

00:29:31.920 | and the risk, and the risk, and the risk. And then, you know, you could buy these,

00:29:34.640 | you know, cryptocurrencies so easily, you could trade them so easily, you could create one so

00:29:40.240 | easily, people were popping up forks of these things. So in a way, what technology has done

00:29:45.360 | over the last 30 or 40 years, from cloud computing to software to open source has made it very easy

00:29:51.280 | to pop up a startup, where you could pop up a currency. And then you could get an incredible

00:29:56.400 | reward. And you get this incredible reward before you actually make a product for consumers.

00:30:01.760 | And, and absolutely zero rules and oversight.

00:30:05.600 | No oversight. Yeah.

00:30:07.120 | The feature that was touted was actually the first one to get thrown away, which was transparency.

00:30:14.480 | Yeah.

00:30:15.360 | When all of this activity was actually happening off chain, this is why you have

00:30:19.600 | this systemic risk issue. Now, when Sam is saying some of these exchanges are actually in solvent,

00:30:26.080 | what he's saying is, well, that exchange has one master wallet address.

00:30:32.560 | Every time you open an account and transact on such exchange, you're actually just transferring

00:30:37.760 | between a database entry inside of that company. And so it may look like it is fine, but it is

00:30:45.040 | actually not fine. That's what he's claiming. This is the problem with all of this. So all of

00:30:50.000 | this activity, you know, built on these principles of openness, and, you know, defensibility, and,

00:30:56.560 | you know, you can't inflate it, and, you know, devalue it and debase it. Turned

00:31:01.440 | out to not even matter because the fundamental principle that would allow us to verify all of that

00:31:05.840 | was violated right from the get go, which was transparency. All of it is happening in the dark.

00:31:10.160 | Most of this stuff is happening off chain. And if you think that, you know, it's okay to torch

00:31:16.000 | a trillion dollars of equities, well, at least there's rules on the equity side. But to torch

00:31:21.360 | two and a half trillion dollars in crypto, where there are no rules, it'll be really, you know,

00:31:26.400 | it'll be a very telling sign to see if these folks get their act together. And but meaning regulators and

00:31:31.280 | politicians and do something. Well, then we made this crazy hybrid where we had the venture

00:31:35.760 | community and I'm not going to talk about any specific firm here. And to be clear, you know,

00:31:39.840 | nobody knows exactly what's happening. But you had coins, you can't know, by the way, you can't know

00:31:46.000 | because it was happening off chain. Exactly. So somebody would originate a coin and I was you know,

00:31:51.120 | offer these deals and you would as a venture capitalist be buying some equity in a company.

00:31:55.280 | And then some amount of tokens would be created

00:31:57.760 | before the token was released to the public or before anybody had insights into this,

00:32:01.120 | these tokens were swapping around, everybody had different rights, some people could sell early,

00:32:05.200 | some people could never sell. And it was as if, you know, you took the process of going public,

00:32:12.080 | and you gave that to a seed stage or a series A company before they launched their product.

00:32:17.440 | So you're taking a company public, essentially before they go if you if you subpoena,

00:32:22.320 | they launch their product. If you subpoena the exchanges,

00:32:25.200 | all of this gets turned over. Yeah, because the exchanges are the honeypot of off

00:32:30.960 | chain activity. Yeah, so that's what's going to happen, I think in all of this,

00:32:35.120 | and it's going to be really funky. This is and what's terrible about this is,

00:32:38.880 | this is why the accreditation laws exist is like only sophisticated people top 6% of Americans are

00:32:44.480 | allowed to participate in private companies. And what did we do? We allowed 100% of people

00:32:49.680 | on the globe to participate in private companies. Backed by pure math that less than 1000 people in

00:32:54.960 | the world actually understand. That makes sense. What could go wrong? What could go wrong?

00:32:58.720 | You cannot buy a stock.

00:33:00.800 | But you can buy this cryptographic with secure,

00:33:04.000 | you're not allowed to buy a share of LinkedIn or Uber or Airbnb, even though you stayed in an

00:33:08.160 | Airbnb, we were an Airbnb host, you're too stupid to buy Airbnb shares when it's private. But you

00:33:13.520 | can buy this cryptocurrency that doesn't even have a product in market. And here's this white paper

00:33:19.360 | that has, you know, university level pure math as the explanation of why it nothing can go wrong.

00:33:25.200 | And you try to turns out again, because nobody actually understood in the first place.

00:33:28.880 | This is going to be a

00:33:30.640 | decade of discovery.

00:33:32.640 | If you look at that price chart, what it really means is like, again, you know, we talked about

00:33:35.920 | this. If the equity markets have to rebase, and get all this QT or QE out of it. Yeah, right. And

00:33:42.880 | then you have to rebase for earnings if you believe you're in a recession, and then you have to rebase

00:33:47.280 | for margins if you believe that there's rampant inflation, those three things have to happen in

00:33:51.680 | the equity markets. We're in the midst of that. Yeah. But that also has to happen on the crypto

00:33:55.680 | markets in the crypto markets. And if you look at that chart, what it really tells you is that the

00:34:00.480 | equity markets have to be in the red, and that's the way that we're going to be in the future.

00:34:02.640 | So I think that's the key. And I think that's the key. And I think that's the key. And I think

00:34:04.880 | that's the key. And I think that's the key. And I think that's the key. And I think that's the key.

00:34:05.680 | Before all these, you know, 510,000 3500 to 5000.

00:34:10.480 | Yeah, I say about 5000.

00:34:11.680 | Still 75% from you.

00:34:13.680 | Yeah, it's 20,000. Now. So yeah, we got we got we got we could we have ways to go one thing that I

00:34:17.840 | thought was an interesting sign of potentially bouncing along the bottom. Zendesk has agreed to

00:34:23.680 | be acquired by an investor group in an all cash transaction. They're basically going private here

00:34:27.760 | for around 10.2 billion.

00:34:30.320 | If you don't know Zendesk, it's a help desk software company. It's a SaaS software company.

00:34:34.720 | They turned out a similar acquisition of 17 billion earlier this year, their market cap is

00:34:39.680 | 9.1 billion in the public markets. It's gone up obviously since this announced this was announced,

00:34:45.040 | but they have a billion three in revenue. They're up 30% year over year. So this is a strong company.

00:34:52.400 | But the acquisition price is 7.7 times their 2021 multiple.

00:34:57.680 | Sorry, did you say they're up 30%?

00:35:00.160 | You're over the revenues up 30% revenues up 30% year over year. They have $1.5 billion in cash and

00:35:05.680 | securities that are you know, marketable security. So they're cash rich, small loss 223 million for

00:35:12.080 | the year in 2021. So they have six years of runway if nothing were to change. Yeah, what do you make

00:35:17.440 | of this sex is why would they do this? They don't have to. So and is this to you like the sign of a

00:35:24.880 | bottom if we start seeing a bunch of these companies that went public that are seemingly

00:35:29.120 | strong start to go public?

00:35:30.000 | private? And to go maybe clean up their balance sheet and go public again in three years?

00:35:35.280 | What's going on here?

00:35:36.560 | Well, I mean, this isn't a horrible outcome. And by the way, I mean, I remember we shared when I was

00:35:41.680 | doing Yammer a decade ago, we shared a floor in our an office building at 410 Townsend with with

00:35:48.480 | Zendesk. And they launched a tech crunch 50. Yeah, yeah, exactly. So we had I think 5000 square feet

00:35:54.080 | and the other 5000 square feet and we were in a standoff both of us were expanding and we needed

00:35:58.560 | the other half of the floor. And so we had to expand the other half of the floor. And so we had

00:35:59.840 | to expand the other half of the floor. And it was like, who would move first, basically. And

00:36:02.880 | anyway, they ended up moving and we took over their space. But so I mean, look, this is a

00:36:07.040 | company that you know, was worth 100 million bucks 10 years ago. So whatever it was, I mean, they were

00:36:12.560 | still, you know, they were very early stage. So this is still a great outcome. So they've taken

00:36:17.440 | the 17 billion shirt with 2020 hindsight, that would have been better. But look, you're seeing

00:36:22.000 | the valuations here being roughly reflected. The SAS index is now down to about five and a half times

00:36:29.680 | revenue, I think next 12 months revenue for them for the median SAS company, and the median SAS

00:36:35.520 | company is growing about 20%. If you're a high growth company, which starts at 40%, you're

00:36:41.600 | trading at about eight times next 12 months revenue. So Dennis is sort of in there. I mean,

00:36:46.160 | that is what they're trading for. And SAS founders, why go? Why would the founders the board?

00:36:51.520 | I'll tell you what to go private is the question on people's minds,

00:36:55.120 | not it's not that they wanted to go private. I think that they wanted to stay public and they want

00:36:59.520 | to build a large business. But this is where the law of large numbers catches up with every company.

00:37:05.840 | That's why it's so rare to have an Apple or a Google or Microsoft or Facebook or Netflix,

00:37:11.040 | where you can grow for 20 years at 25 plus percent because at some point,

00:37:14.800 | 25% growth over last year, just becomes too hard of a mountain to big nine.

00:37:20.960 | And so what Zendesk suffered from is what most of the SAS companies

00:37:25.840 | not and I'm not trying to disparage them just calling it out, we'll have to

00:37:29.360 | go through which is the following. The easiest kind of SAS company to start,

00:37:34.720 | and the one that folks, you know, really talented investors like sacks will fund overwhelmingly over

00:37:39.840 | others, are what's called bottoms up SAS, right? Things that sell to the low end of the market

00:37:46.480 | things that sell into, you know, as individuals can buy them in a corporation as opposed to the

00:37:51.440 | CIO. Yeah, the unfortunate part of that growth curve is that it's pretty terminal within 7-10

00:37:58.160 | years. And I think that's the key to that. And I think that's the key to that. And I think that's

00:37:59.200 | the key to that. And I think that's the key to that. And I think that's the key to that. And after that,

00:38:00.320 | you're forced to go to the mid market, and then eventually you're forced to go enterprise.

00:38:05.280 | But when you go to the mid market, and you're selling to 500, you know, 1000 2000 person

00:38:09.600 | companies, and then eventually even enterprise, you're talking about massive investments of OPEX,

00:38:15.200 | people, engineers, product managers, salespeople, and all of that stuff costs money,

00:38:20.480 | and it's not clear that your product is any good. So in the Zendesk example,

00:38:24.880 | it's not to say their products were bad. But all of a sudden, they were going up and selling a

00:38:29.040 | CRM tool, Salesforce automation tool. And now you're going head to head against companies like

00:38:33.840 | Salesforce who are going down market. And all of a sudden, Salesforce and Microsoft and all these

00:38:39.280 | companies can play very aggressive pricing games with their products, they can bundle all kinds of

00:38:44.160 | other things in for free, they can give you discounts. And it's very hard to compete as

00:38:49.040 | a single individual company. So your growth starts to stall. So I suspect what happened

00:38:53.120 | at Zendesk is they said, we can make it. And we believe in ourselves. And they found

00:38:58.880 | that it was hard, then instead of organically growing, that's when they turned down the $17

00:39:03.360 | billion offer. They tried to grow inorganically, they looked at SurveyMonkey, right, which our

00:39:08.720 | friends Xander runs and said, we're going to try to buy that for $4.1 billion. And the market said,

00:39:12.880 | uh, no. And then the market basically contracts. And now they're like, well,

00:39:18.320 | if we go and now torch our EBITDA goals and tell the market, we're going to go and spend

00:39:23.840 | all that billion dollars we have to try to go up against Salesforce and Microsoft with a product that

00:39:28.720 | we don't know is going to work, our stock is going to be at $1. And so I think that that's sort of the

00:39:34.720 | parade of terribles that happened for them. But it's a little bit of a warning sign for how

00:39:39.520 | difficult it is to get big, like what Salesforce pulled off, right, and what Workday is starting

00:39:45.200 | to pull off what ServiceNow has pulled off. I mean, you can't underestimate the quality of

00:39:51.200 | I mean, Google, Apple, Facebook,

00:39:53.520 | I'm saying I'm saying specifically enterprise SaaS, yes, those companies, ServiceNow probably

00:39:58.560 | being the last one that's really did it. Incredible. So difficult. Palo Alto Networks

00:40:04.320 | is probably the next closest one now. Salesforce, let's be clear, right? Salesforce,

00:40:08.960 | it doesn't matter how you get there. Organically, inorganically doesn't matter. The point is,

00:40:12.480 | it's very hard. Most CEOs fail. Nobody. So is this going but okay, so my original

00:40:17.840 | question is, is this the bouncing along the bottom moment? Because we have Peloton, BuzzFeed,

00:40:23.040 | we have so many of these companies. This is a warning sign. Okay. There's

00:40:28.400 | why yet the bottom? Well, this is a warning sign that says, you cannot go into a massive

00:40:35.360 | investment cycle for all companies, unless you can prove that you can sustain margins,

00:40:41.440 | sustain growth, and minimize OpEx. But isn't this a very sophisticated buyer,

00:40:47.280 | taking it private, they must have a thesis of how they're going to get their money back.

00:40:51.920 | Right. So that's my point is, Sax, do you think that this is like, if

00:40:58.240 | the company's already public, and somebody thinks, hey, you know, if I take this private,

00:41:03.040 | I can do better than if it's public, and I'll reintroduce it to the public markets to get

00:41:06.560 | liquidity later? Isn't that what's going to happen here? In all likelihood,

00:41:08.880 | you're making that statement in the absence of understanding how these things are financed?

00:41:12.000 | Well, it's got a billion five, and it's, it's breakeven almost. So

00:41:15.280 | okay, what is it about the what about the billions of dollars of debt they're going to take out and

00:41:19.600 | slab off this company? Right? What about the number of people they may be talking about post

00:41:23.600 | going private? At the end of the day, the private equity firms are not trying to make, you know, this

00:41:28.080 | $10 billion go to 25. They're trying to make the 2 billion of equity they put in go to three.

00:41:34.720 | And there's a lot of ways that two can go to three before 10 goes to 25.

00:41:39.440 | So they want a modest return. 50% return. It's a lot. It's making a billion dollars. It's hard.

00:41:48.240 | Yeah, but but compared to the management team and the board's view of being a public company and

00:41:53.360 | growing 20% a year, or it's actually in their case 30, would that be a better opportunity for those

00:41:57.920 | shareholders? That's what doesn't add up here? Sachs? What do you think?

00:42:00.560 | If I had to guess? I mean, I haven't talked to Mikkel about why they're doing it. I think that

00:42:04.400 | they're operating at a new stage of the business. I don't think it's as fun to be growing a company

00:42:10.080 | at call it 20 to 30% a year. And now all of a sudden, you have to generate cash flow,

00:42:14.320 | and you're being valued on that. I mean, they're passing management burnout. Is your thesis?

00:42:18.880 | I don't know. I mean, it's it seems a potential thesis. I think that's basically why people

00:42:23.040 | sell good businesses. Like I actually don't think there's a problem in their business. I think that

00:42:27.760 | growing 30% a year with 1.3 billion in revenue, plenty of cash in the bank, I think they have a

00:42:33.040 | good product. I don't think there's anything wrong with the business. Yeah, I think that

00:42:37.520 | that I do think founders get burned out. And this is an exit. And I do think that the phase of their

00:42:42.720 | business they're in right now is not going to be as fun as a high growth phase. Look, when you're

00:42:47.120 | growing 100 200% a year, and investors are willing to fund that growth, and they don't really care

00:42:51.920 | if you're profitable, that is just more fun than growing a business 20 to 30%. A

00:42:57.600 | year and investors are breathing down your neck saying, when are you going to deliver cash flow?

00:43:02.560 | And what the private equity guys do is they're going to go in there and they're going to

00:43:05.920 | restructure the business to deliver cash flow. Now, I think ultimately, these types of businesses,

00:43:13.360 | they're great, the software business, they're great business to own, because

00:43:16.000 | they're high gross margin. And, you know, they've got a subscription base that just keeps growing

00:43:21.840 | organically if they've got positive net dollar retention. So you've got a let's call it a 1.3

00:43:27.440 | billion dollar subscription base that will grow to 2 billion over the next whatever half dozen years.

00:43:33.280 | And quite frankly, I bet you the private equity guys are going to take out half the cost structure.

00:43:37.040 | There's no reason this thing could be generating 500 million a year in free cash flow.

00:43:41.920 | But the management team would be unwilling to do that because it's a different

00:43:45.280 | every day to come in and fire half the team that you hired and take that hard medicine.

00:43:52.000 | It just is a bummer for that personality type. I think it is a different kind of management.

00:43:57.280 | I think it's a different kind of management challenge. And yeah, I don't think it's that fun.

00:44:00.240 | And but look, the thesis behind software companies, the justification for them burning money

00:44:06.160 | was, look, we're gonna we're gonna spend every dollar in revenue that we make and then some

00:44:12.000 | because we're building a subscription revenue base that again, has positive net dollar retention.

00:44:17.600 | So one day, okay, one day, we won't have to keep investing so much in sales and marketing,

00:44:23.280 | we won't have to keep investing so much in R&D, we'll still keep

00:44:27.120 | investing to some degree, we'll make the product better,

00:44:29.600 | but it's gonna be a little bit more maintenance mode, we will get to maturity.

00:44:33.040 | And then you can lay off a third of the staff and all of a sudden,

00:44:35.760 | and then and then all of a sudden, the company is gonna be super profitable.

00:44:38.240 | And the fact of the matter is, is that day never came because the markets never demanded it.

00:44:42.720 | And now that day is here.

00:44:44.320 | No, no, no, hold on. It never came because the markets kept demanding more growth.

00:44:48.480 | If you look at their long term operating margins, you know, when they first became

00:44:52.240 | when they first came out public, they'd like had like a negative 30% margin. Two

00:44:56.960 | years later, they had a negative 50% margin. And over the last seven years, so that was 2015.

00:45:03.120 | Up to now, they've crawled their way back to negative 13%.

00:45:06.640 | So at some point, I think investors said, Oh, my gosh, this company has never made money,

00:45:12.080 | it needs to keep investing more in order to grow. And I think David, to your point,

00:45:16.640 | maybe the decision that he didn't want to make was to flip it to a cash cow.

00:45:20.960 | I don't think that's true. I looked at these guys have been generating cash.

00:45:26.800 | Their reported gap earnings are negative because of the stock based comp expense,

00:45:30.800 | meaning that they're issuing there's a big topic to discuss here.

00:45:33.520 | And I think that that's actually worth highlighting, because this is an important

00:45:36.240 | one, because people have been talking about this considerably lately. So this company has been

00:45:40.400 | making money every quarter, they generate cash. But in the last quarter, they issued $60 million

00:45:46.880 | in stock to employees to compensate them for the work that they do.

00:45:51.040 | So that's 250 million roughly, of dollars per year of stock based comp,

00:45:56.640 | which is two and a half percent of the total shares outstanding in the company are issued

00:46:02.720 | as employee comp every year. That number results in a dilutive effect to shareholders over time,

00:46:08.880 | even though the business is generating cash, your relative ownership as a shareholder in

00:46:13.200 | a business that's generating cash is going down by two and a half percent every year,

00:46:17.440 | because of all the new shares that are being issued to compensate employees for the work that

00:46:21.760 | they're doing. And I think that's part of the issue that a lot of folks have taken for granted. This was

00:46:26.480 | well rooted in, I would say probably Google who became very generous very early on with issuing

00:46:32.160 | RSUs and stock in their publicly traded securities to employees as part of their compensation package.

00:46:38.400 | But Google has a 30-40% EBITDA margin in terms of incremental contribution of new revenue.

00:46:44.080 | And they can afford to take a point or two of dilution. Google, by the way, is actually not

00:46:51.200 | dilutive, they buy back shares with their extra cash. So as a shareholder, you actually bet a

00:46:56.320 | benefit from this considerable cash generation. But a lot of software businesses and tech companies

00:47:01.600 | in general, have had to rely on issuing shares to compensate employees for the work that they do.

00:47:06.400 | So even though the core fundamental of the business is generating cash and cash is going up

00:47:10.720 | every year, the business doesn't know how to get out of this cycle of how do you pay these engineers

00:47:15.120 | $400,000 a year without diluting shareholders by issuing all these new shares every year. And you'd

00:47:20.880 | have to do that more likely as a private company to figure out how to consolidate earnings, how to trim

00:47:26.160 | headcount, isn't that the thing to generate the cash it needs to generate.

00:47:29.280 | But Freeberg, isn't that a real like, you're pretending like it's some fake costs?

00:47:32.720 | Yeah, it's not. It's a real cost. It's a cost to shareholders for sure.

00:47:36.400 | But why? But why? Why the asterisks?

00:47:38.400 | Well, no, there's a specific reason because the business itself operates

00:47:43.120 | out of cash is not burning cash, the business is growing its cash balance.

00:47:46.640 | But in order to compensate employees for that cash balance, they're diluting you,

00:47:50.400 | the shareholder, right?

00:47:51.440 | Look, when you own a share of a company, okay, let's just say the

00:47:56.000 | way is another way of saying that the company is effectively issuing two and a half percent

00:47:59.600 | new stock every year to fund its operations. I mean, that's another way to think about it.

00:48:03.680 | Look, I'll give you the Warren Buffett school, you can tell me that it's stupid,

00:48:06.560 | but it kind of makes sense, which is you take the number of shares you own,

00:48:09.360 | you divided by the total number of shares outstanding, you look at the total profits,

00:48:14.800 | and you say my look through earnings equals that percentage times the total profits.

00:48:19.840 | Yeah, and your percentage is going down every year with stock based comp.

00:48:22.160 | That's the problem. And so the question is,

00:48:25.840 | it's also going down because you're buying real estate, you're hiring people, you're paying them

00:48:29.200 | more, like, it's going down for a whole host of reasons. That asterisk is an irrelevant asterisk,

00:48:33.360 | in my opinion, like, at the end of the day, you spend money to grow. How you spend the money is

00:48:37.440 | not that important to me. Let me say two quick things on the topic. One is, yeah, I totally

00:48:42.240 | agree. It's an expense on enterprise software. And Sax, you're the master of the art. But you know,

00:48:50.640 | as an observer, it seems to me that many of these companies once you have an enterprise account, you

00:48:55.680 | can grow this net revenue retention number over time and ultimately generate cash. Many of the big

00:49:03.840 | enterprise software companies that we've talked about from Salesforce to Workday and others have

00:49:08.160 | succeeded in doing that. Autodesk is another good example. And Carl Bass, I think is on the board of

00:49:12.320 | Zendesk. They've done, they've done this successfully by bulking up their product

00:49:16.640 | categories. And they've done acquisitions or they've done build outs. And so over time,

00:49:21.600 | your incremental cost to sell a

00:49:25.520 | new product and generate incremental gross profit goes down, and the business performs better with

00:49:32.000 | scale. This seems to be one of those businesses where ultimately they couldn't bulk up through

00:49:36.160 | acquisition, and they couldn't organically build new products. And they tried. And so the challenge

00:49:41.280 | is they're kind of a, I don't want to say a one trick pony, but the portfolio of things that a

00:49:45.520 | business like this can sell into and ultimately increment gross profit is very limited. And that

00:49:49.680 | business becomes challenging to operate as a public company, because you really do have to

00:49:53.280 | show that momentum as a scaled enterprise software.

00:49:55.360 | And so I think that's one of the things that's really important to be able to do.

00:49:57.520 | And I think that's one of the things that's really important to be able to do.

00:49:59.040 | And I think that's one of the things that's really important to be able to do.

00:49:59.680 | The other thing I just want to say on stock based comp, and sorry,

00:50:02.000 | Sax, come back in one sec. But Chamath, and you guys, I don't know if you realize this, but

00:50:06.400 | the standard in Silicon Valley today, when a company goes public in an IPO, is to have what's

00:50:12.640 | called an evergreen stock grant proposal. And evergreen basically means that every year, the

00:50:18.720 | company is authorized, the board automatically authorizes the issuance of some percentage of new

00:50:24.800 | shares per year. This is typically in the range of 4%. And ISS and other you know, kind of

00:50:31.200 | institutional shareholder advisory services actually vote against these shareholder proposals

00:50:37.120 | and push back against them. But most of the companies in Silicon Valley that go public

00:50:41.680 | automatically include evergreens as part of their you know, kind of IPO prospectus.

00:50:46.160 | I mean, can we agree it's out of control? Like it's yeah, we got every year they can they can

00:50:50.000 | dilute shareholders by 4% and you know, independent of how the business operated that year.

00:50:54.640 | Which is effectively the same as doing a 4% secondary cash offering every year,

00:51:00.000 | because it's this you're issuing those shares into the public market. And instead of getting cash,

00:51:04.640 | you're paying your employees with them. And so it avoids you having to use your own cash balance to

00:51:09.120 | pay your employees. So you're effectively raising money every year. And you're allowed to raise up to

00:51:14.160 | 4% dilutive effect to shareholders to do that every year. And it's become a real topic. And it seems

00:51:19.200 | to me that a lot of the big portfolio managers of big institutional funds are starting to pay really close attention to this.

00:51:24.080 | quote unquote, standard in Silicon Valley, that stock based comp expense has become so high, and evergreens have become kind of a standard as almost like an ordinary course of business.

00:51:31.440 | And it's become, you know, a really contentious topic. And I don't think it would be too surprising.

00:51:35.760 | Number one to see cash salaries go up. And number two, as a result of that to see salaries become rationalized in Silicon Valley, where engineers may start to get challenged on the standard 400k per year that everyone's become used to, you know, in terms of

00:51:53.920 | you know, high tier, you know, so promote work, maybe there is a compromise that can be had. But

00:52:00.640 | this compensation, you have to remember, has been outrageous in some cases,

00:52:04.320 | especially for senior management. And so it makes the core business look broken. But what you actually

00:52:10.400 | have is maybe people who are on these boards, are also in on this compensation. And it's just

00:52:16.240 | bad hygiene. And it's not related to the performance of the company, right? I don't think

00:52:19.360 | I don't think the board people are quote in on it. I think that's it just it's you have to pay an

00:52:23.360 | engineer 400k a year to compete effectively in Silicon Valley today.

00:52:26.240 | Well, I was talking more about the management's the management's.com. The management's.com is

00:52:31.120 | different than the engineers, you would agree for you. Like, there have been some

00:52:34.240 | enormous stock grants. Yeah, yeah, certainly.

00:52:36.880 | If you want to run the company as a high growth startup,

00:52:40.480 | with employing these high paid engineers and executives, including stock compensation,

00:52:45.600 | that is a certain kind of way of running the business. But again, if you're trying to run the

00:52:48.800 | business for profitability, that's a different way of running the business. And just to add a

00:52:52.320 | layer to what happened here, that Zendesk was under intense pressure from an activist investor called

00:52:58.800 | Jana, who was basically trying to replace the board of directors, they're running a proxy battle

00:53:03.360 | against them. So Jana has been pressuring them to replace the board to make all these changes,

00:53:10.000 | to take the $17 billion offer, I guess back in March, they didn't do it.

00:53:15.520 | Now they did a lower offer at 10 billion. Why?

00:53:18.240 | I think because the market has clarified, we now it's clear that we're in this regime change,

00:53:24.320 | what the market is valuing is free cash flow, as opposed to profitless growth. And my guess is,

00:53:31.120 | again, without having talked to Mikkel, my guess is they probably just threw up their arms and said,

00:53:34.640 | listen, you know, like, it's not going to be fun to run the company this way. But you also have to,

00:53:39.680 | you have to ask the question, why are these highly sophisticated private equity firms

00:53:44.080 | buying it for 10 billion, I think they're going to make a lot of money. And the way they're going to

00:53:47.680 | make a lot of money, more than a billion, they are going to slash the hell out of the cost

00:53:52.160 | structure, they're going to run it to be highly profitable, they'll probably bring the growth

00:53:56.640 | down from 30% a year to 20%, or 15%. But the benefit, the offsetting benefit to reducing the

00:54:03.120 | growth a little bit will be, they could probably generate three, four, 500 million of free cash flow

00:54:08.160 | on that business, if it's doing 1.3 billion, and they stop investing in R&D, and they stop,

00:54:13.520 | and they bring down the sales and marketing, that could be a that could be a cash cow, like,

00:54:17.120 | like you said, so I think that's probably what's what's going on here, is the

00:54:21.680 | I just want you guys to know not to burst this bubble. But when people talk about free cash flow,

00:54:26.320 | they touted a lot tech companies touted a lot, because you're allowed to add back in stock based

00:54:33.680 | comp as if it didn't exist. The problem is that stock based comp is non cash. So when when you're

00:54:40.320 | only sourced, so if you see a company that has negative EBITDA, negative everything, all of a

00:54:45.680 | sudden, they're like, quote, unquote, 50% of the company is going to be in the stock base comp.

00:54:46.560 | unquote, free cash flow positive. It's because they were able to add back in stock based comp,

00:54:51.600 | but that money is not real. So when the only source of free cash is stock based comp,

00:54:55.840 | that free cash flow doesn't reflect the company's true profitability. This is what I mean by people

00:55:01.440 | play these shell games with these numbers to allow you know, oh, let's, you know, value

00:55:06.960 | something based on EBITDA actually no, because you know, our stock based comp is off the charts,

00:55:10.960 | let's actually go to something else, you know, we'll do a non gap EBITDA measure, you know, you

00:55:15.840 | know, adjusted EBITDA, and then Oh, actually, wait, sorry, look at free cash flow, because you

00:55:20.320 | can add back in this gargantuan amount of stock based comp. I mean, it's crazy. I'll just the

00:55:25.920 | quote from the community. But we work. The quote from Warren Buffett summarizes the best.

00:55:31.200 | If compensation isn't an expense, what is it? And if real and recurring expenses don't belong in the

00:55:40.080 | calculation of earnings, where in the world do they belong? I think what we're seeing, right?

00:55:45.120 | My point is, is not that comp isn't an expense it is, but rather that it's an expense that you can

00:55:51.200 | control by reducing the amount of staff. I think these private equity guys are gonna basically whack

00:55:56.640 | the cost structure. This is saying you can distort free cash flow as well, because you can head back

00:56:00.960 | in stock based comp. It's a joke. It's a little bit of a shell game going on. It's like the dirty

00:56:05.120 | secret. Let me ask you, like an important investing accounting question. Let's say that a

00:56:11.600 | business like Zendesk is generating 100 million dollars in revenue, and you're going to be able to

00:56:14.400 | generate 100 million dollars of free cash a year. No, no, no. What does that mean?

00:56:18.160 | Well, hold on. So every year their cash balance goes up by 100 million dollars. They

00:56:23.120 | have a business. It generates 100 million dollars of incremental cash. Every year the cash balance

00:56:27.200 | goes up. So you as a shareholder own shares in a company that is creating 100 million dollars of

00:56:32.320 | incremental capital per year. However, your shares that you own are going down because

00:56:39.440 | they're getting diluted every year by roughly two and a half, three percent. And that's it's

00:56:43.680 | two and a half percent is Zendesk's actual number. So every year you're getting diluted by two and a

00:56:47.840 | half percent. Would you rather have a business that you are getting diluted by two and a half

00:56:52.400 | percent, but it's incrementing its overall balance by 100 million dollars? Or would you rather own

00:56:57.680 | shares in a company that's burning cash each year? And I think that's where this ended up from a

00:57:02.160 | market perspective, getting rationalized. Shareholders said, I want to have the safety and

00:57:06.400 | security of cash generation, and I'm willing to take on the dilution for it. And that's how this

00:57:11.200 | became, you know, as standard as it is. When I was a shareholder, I was a shareholder. I was a

00:57:12.960 | shareholder. I was a shareholder. I was a shareholder. I was a shareholder. I was a shareholder.

00:57:13.360 | When I think about funding a new startup, and I look at the competitive landscape, when I see

00:57:19.440 | that the competitors have all been acquired by private equity companies, I generally think,

00:57:24.960 | okay, there's room for innovation here, because I know that the first thing that PE firms are going

00:57:29.920 | to do when they acquire a company is like zero out R&D, or just put the product on maintenance mode.

00:57:36.320 | There's no innovation that happens with a product once the PE firms buy it, right? So the reality is,

00:57:42.240 | I think those are good targets for startups to do acquisitions, right,

00:57:45.680 | sex. I mean, they'll find Yeah, they'll, they'll do roll ups, right? Because it's they will do

00:57:50.720 | financial innovation, they will innovate the the structure of the business, all the wasteful

00:57:55.520 | spending and all the nonsense and lunches. Yeah, exactly. Come on, say once like cut out all the

00:58:00.480 | kind bars. Yeah, the kind of exposed brick walls, like all this nonsense. So do you think the Vegas

00:58:06.880 | trip? Yeah, the stock based compensation is gonna go away, because they're gonna get rid of all the

00:58:10.320 | high priced engineers, they're gonna get rid of the high priced engineers, they're gonna get rid of the,

00:58:12.080 | a lot of the high priced executives, they're gonna probably they're gonna have to keep customer

00:58:16.640 | support, they're gonna increase cash salaries, probably. They'll bonus people, they'll just do

00:58:21.760 | bonuses for hitting targets, instead of giving people as much equity in the business. And they'll

00:58:26.880 | run it like a, you know, private equity type type play. Sex. It's not fun. It's not interesting to

00:58:33.680 | me. Right? Yeah, I mean, we're gonna see it's not like a product. I think David,

00:58:38.560 | the other reason why it wouldn't be fun is like it's a it's a level of financial engineering,

00:58:41.920 | which is highly sophisticated. I think for some people, it is fun. I think for us, it's less fun,

00:58:45.840 | because you're not necessarily creating a company per se, not innovating, you're not being a product

00:58:50.160 | person here. Yeah. But I would say that it is a highly sophisticated and the folks that do it at

00:58:54.320 | these places that these private equity firms are incredibly, they're very good at it, savvy at how

00:58:58.720 | they do it. And it's all the twists and turns of how you, you know, lever this up and use debt and

00:59:04.160 | blah, and use a margin loan and pre fund the I mean, it's not the stuff that necessarily we want

00:59:09.840 | to be thinking about.

00:59:10.920 | But that's what you'd have to do as well. I totally agree with that. Look, I'm,

00:59:16.080 | I'm happy they exist in the ecosystem, because we need firms, we need more exits, right. And

00:59:21.840 | we know that right now in Washington, the the regulatory regime is very difficult,

00:59:28.720 | it's very hard to get deals through. So at least you have private equity firms that are providing

00:59:33.280 | some exits, and we need the ecosystem needs and those exits are saying sacks don't trigger,

00:59:38.400 | like comp competitive consumption.

00:59:40.760 | Yeah, I mean, I think that's one of the concerns with Lena Khan and her group, right? Like, yeah,

00:59:43.040 | she's like, some private equity firm took this private, okay, Salesforce didn't buy it. So we

00:59:46.480 | don't need to get through regulators, you're going to see a lot of need exits in order to justify the

00:59:51.760 | risk capital that goes in at the earliest stages, which, in most cases is going to be a zero.

00:59:57.520 | And just to give you some other numbers out there manscaped, which is a company sells razors for

01:00:01.680 | guys. They had 315 million in net loss in 2021, with 310 million in stock base comp, by the way,

01:00:09.600 | that number can also be described as a loss of $310 million. And that's a lot of money. And that's

01:00:10.600 | a lot of money. And that's a lot of money. And that's a lot of money. And that's a lot of money.

01:00:10.620 | And that's a lot of money. And that's a lot of money. And that's a lot of money. And that's a lot of money.

01:00:10.620 | Yeah, absolutely distorted. Just to be clear, if you give a one time big grant to an executive,

01:00:15.080 | like a CEO, the way that the accounting works on stock based comp, it's not the kind of thing you

01:00:20.360 | can have a very simple kind of descriptor on but you can have these very significant short term

01:00:25.560 | costs associated with a big grant that could vest over a long period of time. Sure, with that has

01:00:30.520 | very high strike prices. I mean, when Elon got that massive grant that Tesla, the stock based

01:00:36.120 | comp expense was significant. But yeah, but you know what the interesting way into it, it was that

01:00:40.440 | was there were 20 targets or something crazy like that. And all of them were based or a lot of them

01:00:44.760 | were based on the stock price and the delivery of cars. So that's one of the things that I think is

01:00:48.760 | broken. Yeah, yeah. So this is one of the things that's broken in Silicon Valley is that the comp

01:00:54.360 | in the stock based comp is not tied to performance. It's like just giving people guaranteed salaries.

01:00:59.000 | In fact, I was gonna say Jason, I could be wrong, like, there is more sophistication,

01:01:02.760 | to be clear, in executive comp and public technology companies,

01:01:06.440 | I think that should trickle down to the junior people to I think everybody should rise and fall

01:01:10.280 | at the company's performance. That's my personal feeling. I mean, this is the problem with

01:01:13.720 | entitlements, you know, and people being entitled to sorry to be like a red peltier, but we should

01:01:19.320 | have like performance should be lauded and compensated for not just showing up and hanging

01:01:24.600 | out, there's gonna be a bunch of companies in this position. So look for this as a trend Peloton 964

01:01:30.120 | million last quarter in revenue lost 757 million in the quarter. They have a $3.1 billion market

01:01:36.120 | cap, they've only got $879 million worth of cash. I'm just looking at these numbers. Hopefully,

01:01:40.120 | they're, they're tight. And they have a billion for an inventory, that company is going to get

01:01:45.400 | taken out. BuzzFeed, I don't know why that even went public, they're down 84%. They had

01:01:50.520 | 91 million media company and $91 million in q1 revenue, they lost 45 million, their market cap

01:01:56.360 | is down to 210 million. And they've only got 74 million in cash or so with some, you know,

01:02:02.680 | maybe 100 millions in accounts receivable. So there's a bunch of companies right now that are

01:02:06.600 | public, that are about to hit in a couple of quarters.

01:02:09.960 | running out of cash going into a recession, are we going to see some big flame outs? Do you think

01:02:15.880 | and are you watching specific companies because the private equity folks must be salivating

01:02:20.200 | watching this? Well, I mean, look, you asked what the takeaway was around this. And I think

01:02:25.480 | the takeaway is there's been a regime change in the public markets, the way that investors look

01:02:29.720 | at these companies is changing. It's not about growth at all costs anymore. They're not just

01:02:34.440 | looking at revenues. It's also about margins and cash flow. And you know, we talked about in the

01:02:39.800 | last pod, how I think a lot of founders understand intellectually that we're headed for a downturn,

01:02:46.120 | if not a recession, but they weren't taking the medicine of basically reducing their burn. Well,

01:02:51.800 | this is an indication of what investors are valuing. If the only way for Zendesk to create

01:02:58.040 | value as a public company is to sell to a private equity firm, who's gonna have the staff is gonna

01:03:03.800 | cut off some huge number of staff to run it for free cash flow. That's just an indication of the

01:03:08.760 | regime change. So, yeah, I think that's a good point. I think that's a good point. I think that's

01:03:09.640 | a good point. I think that's a good point. So, you know, we need founders to start

01:03:12.280 | internalizing this information, so they can run their businesses more efficiently.

01:03:17.160 | You know what investors want right now, they still want growth, but they want it with low burn,

01:03:22.120 | high burn operations are going to get punished. I've transitioned most of my public markets time

01:03:27.880 | to focus on debt. And I've been looking at companies because yeah, because there's a lot of

01:03:33.880 | these really interesting tech companies with a lot of because what David said, I think is 100,000%

01:03:39.480 | right, what Sachs just said, there is a massive, massive regime change here. And yeah, and when

01:03:45.880 | shocking you if you don't take the medicine, you know, and what's funny is like, so many of these

01:03:50.520 | companies have been left for dead. But what has really juicy is the few companies that you think

01:03:57.720 | will survive, and specifically making sure you're protected in the capital structure, which means to

01:04:03.240 | own the debt because the debt is always senior to the equity. And there's some really, really

01:04:08.520 | interesting companies out there. And I think that's a good point. I think that's a good point.

01:04:09.320 | I think that's a good point. And I think that's a good point. And I think that's a good point.

01:04:10.360 | That are in that situation. And it's just like, it's a much better risk reward.

01:04:15.000 | In a moment where again, you know, we talked about this, but why would you give up your

01:04:19.080 | liquidity today? I don't know the answer. Why? Why go around? Yeah, I use this term,

01:04:25.000 | Jason before like skipping along the bottom. I just think it's like psychological wishful

01:04:29.640 | thinking as opposed to sort of like a rational summation of the actual Jerome Powell just said,

01:04:34.440 | I will take the economy in order to beat inflation. He just said

01:04:39.160 | it in the Wall Street Journal. But people believe inflation might be turning over. Do you buy that or

01:04:43.400 | not? No, as I've said, I think you're going to see eight and 9% inflation prints for at least

01:04:48.840 | the next three or four months minimum. I think that things could get marginally better after that.

01:04:57.160 | But I think the thing we don't know, and again, it just touches and I don't care what the fucking

01:05:01.160 | audience thinks touches Russia and Ukraine. So sorry to bring up politics, but things are

01:05:06.600 | inexorably intertwined.

01:05:09.000 | And if people want to go and venture and gamble in the stock market, you might as well understand

01:05:13.400 | this because I think, you know, many of the scenarios will trade because of what's going

01:05:18.920 | to happen with Putin. Let me ask the question here. How many quarters will this recession be

01:05:23.960 | if we had to pick a range pick a two quarter range? I'm thinking three to five. What do you think?

01:05:29.720 | I have no idea. Okay. Freeberg, you got a second, how many quarters plus or minus two, let's say,

01:05:38.840 | is this recession going to be so five plus or minus two, four plus or minus two plus or minus one?

01:05:43.320 | What are you thinking will be the bottom out point? I don't like the term I've told you guys,

01:05:48.440 | I don't like the term quote recession as if it's some absolute negative thing. I mean,

01:05:52.600 | negative GDP growth coming off of inflated GDP doesn't feel to me as systemically challenging

01:05:59.720 | to the economy. As you know, but some other circumstance where for example,

01:06:06.280 | there was a global financial crisis or

01:06:09.640 | 911 or some other kind of factor that that drove things that really affected the core economy.

01:06:16.120 | We're certainly we hadn't we had something that that affected the core economy and COVID,

01:06:22.040 | then we had massive stimulus. So I don't I think there's this unfortunate general

01:06:27.000 | characterization of quote unquote, recession, being an absolute negative. And I think that

01:06:32.680 | there's relative growth. And if you're, if your relative growth is negative off of an

01:06:38.520 | inflated number, but over Okay, let me give you let me let me just finish but over a historic

01:06:44.200 | two or three year period, you're still growing the economy considerably, because jobs, jobs are

01:06:49.240 | growing and production is growing. It's not as negative as it's being made out to be. So I'm not

01:06:54.760 | gonna Okay, I get you get into let me let me ask you this way, then how many more quarters will we

01:06:59.320 | have of stocks and real estate and assets declining in value or being flat? That's a financial markets

01:07:07.080 | question. Yes, that's what I'm asking.

01:07:08.360 | Different one. And one thing I've realized is that financial markets in the short term,

01:07:12.680 | you have the old Warren Buffett quote, or whomever it is that over the long term equities

01:07:17.800 | are weighing machine in the short term, they're voting machine. As we've seen with crypto, it was

01:07:22.840 | a voting machine that everyone voted on the hot thing is your and now everyone's voting against

01:07:28.520 | it. So I don't know weighing it now. Yeah. Well, yeah, I mean, at some point, you hold a

01:07:33.960 | cryptocurrency long enough, you'll find out how much fundamental productive value it's creating.

01:07:38.840 | And the same is true for owning businesses or other real assets. You'll find out over the long

01:07:43.240 | run how much productive value they're creating. So so you don't want to answer the question of when

01:07:47.400 | we hit a floor. Okay, Sax, when do you think we hit? Are we are we hitting a floor? Now?

01:07:51.400 | We have a lot more to go down. I'll tell you one point of view, I am looking at buying high

01:07:55.080 | quality share businesses, buying shares of high quality businesses right now. I think that there

01:07:59.880 | are things that are that are cheaply priced, that if I own them for a long enough period of time,

01:08:03.640 | the underlying productive value of that business will return my capital to me. And so

01:08:08.040 | you have one that you might want to mention here that you're looking at? I don't.

01:08:11.800 | Because you don't want to share tips at the summit with our friend, Sonny, he's, his trades are up.

01:08:17.560 | But like I told him, these are longer term trades. What do you think in terms of and then we'll go to

01:08:21.960 | some of the political stuff that affects markets after this? Well, I mean, I think it's all related.

01:08:26.280 | So there's three things going on here right now economically are three underlying causes. One

01:08:31.240 | is rate expectations have changed massively interest rates have gone up and rate expectations

01:08:37.880 | are going up even more fueled by inflation. And until we see where we're at on inflation,

01:08:43.880 | whether that gets controlled, that issue is not going away. The second big issue is economic

01:08:48.280 | slowdown, the recession. So the first one is Wall Street, this is Main Street. And these

01:08:52.760 | two things are related because companies are slamming on the brakes, because they're seeing

01:08:56.840 | that the capital availability is greatly getting reduced by this re rating this regime change

01:09:04.280 | in market. So we're seeing an economic slowdown that threatens to turn into a

01:09:07.720 | recession. And consumer confidence is part of that, right when your wages don't buy you as much

01:09:13.560 | because food and gas prices are through the roof, that reduces consumer confidence. And that also

01:09:17.880 | plays into that. So that's the second big issue. And I don't think we're going to know about

01:09:21.960 | recession. It's going to take you know, potentially through the rest of the year before we

01:09:26.600 | figure out what's happening there. And then the third part of this is the overhang of this war in

01:09:31.480 | Europe, the Ukraine war, which is now threatening to become a forever war. There was a pretty stunning

01:09:37.560 | article in the Washington Post this week, in which the administration officials were quoted as saying

01:09:45.480 | that they would effectively prefer or countenance was their word, a global recession and famine over

01:09:52.120 | letting Russia keep the Donbass region. So they are committed now to basically prying Russia out

01:09:59.320 | of the Donbass, even if it means global recession, not to mention

01:10:03.240 | they say specifically the Donbass or specifically standing up to Putin.

01:10:07.400 | Well, that's kind of minimizing.

01:10:08.840 | No, what we're talking about is the Donbass region. What's happened is look, the Russians

01:10:13.560 | lost the first few weeks of the war in which they tried to strike, they basically went for a knockout

01:10:19.080 | blow to take over Kyiv, topple Zelensky. I think we accomplished something in preventing that.

01:10:25.320 | But since then, they have achieved their objective of taking over this eastern portion of the

01:10:30.360 | country, this Donbass region, in which this is where most of the ethnic Russians live. And these Ukrainian

01:10:37.240 | separatists who are ethnically Russian, they've been fighting alongside the Russian troops.

01:10:42.840 | And the Russians have basically won that part of the war. And so the question is, what do we do now?

01:10:47.560 | And what you had is you had administration officials saying that they would not accept

01:10:51.160 | the status quo, that they are willing to fight on for years. You know, the same geniuses who gave

01:10:56.280 | us the forever wars of the Middle East are now giving us a forever war in Eastern Europe. And

01:11:01.880 | they are saying that they are willing to basically continue this fight, even if it means global

01:11:06.520 | recession.

01:11:07.080 | John Greenewald : Now, I don't think the American people

01:11:09.080 | ever voted for this, but this is what the administration is pursuing. And you know,

01:11:14.840 | you got to remember that there's always the risk that this war spins out of control, that we get

01:11:18.600 | a nuclear escalation. So I think that this is a huge overhang on markets. It's the third big

01:11:24.200 | problem that we have. So I don't see how we get out of this bear market until you get clarity and

01:11:30.680 | resolution of inflation and rates, number one, slow down to recession, number two, and basically

01:11:36.920 | this war in Europe, number three.

01:11:38.920 | Jason Wong : And it's reflexive because these next three

01:11:41.640 | months, as I kind of indicated last week, I think we're going to see inflation prints that are really

01:11:49.000 | high in part because things like rents, which haven't, you know, which are on a lag will get

01:11:53.720 | folded back in. So we're going to be printing eight and 9%. And then guess what, Jason, it's

01:11:58.280 | the fall. It starts to get colder. You know, Russia's depriving Europe of Nat gas. Where's

01:12:05.000 | the oil going to come from? Open oil is going to come from Europe. It's going to come from Europe.

01:12:06.760 | David Morgan : OPEC is basically still stiff

01:12:08.200 | farming the United States with respect to expanded production capacity. Why? Because they didn't like

01:12:13.160 | the way that we were strong arming them and a whole bunch of other topics, you know? And so

01:12:17.880 | where do we stand? You could have $180 a barrel oil by November, December when it's cold, not just

01:12:23.560 | here, but in continental Europe. Now all of a sudden inflation gets kicks right back up again.

01:12:28.360 | It could be seven, eight, 9% again. I saw, I just think all of these things are now so

01:12:33.720 | inexorably intertwined. I think David's right. We need to

01:12:36.600 | put this war to bed. And the unfortunate consequence is that right now, if we want

01:12:45.160 | to fight a proxy war, there is no elegant off ramp that I see. So.

01:12:51.560 | Jason Lowery : The prediction markets, just so people know,

01:12:54.200 | are predicting 0.8, 0.9% additional inflation in June over. And I think that's over last month.

01:13:01.640 | And last month was 8.6.

01:13:03.080 | David Morgan : So we're going to be at nine and a half. Jason,

01:13:05.080 | could you imagine what the markets do?

01:13:06.440 | If we print a double digit inflation print 10 and a half percent, 10.1, just the psychology of that?

01:13:12.840 | David Morgan : Well, consumer psychology is really low right now.

01:13:16.200 | Jason Lowery : No, not consumer psychology. I'm thinking

01:13:18.360 | market psychology. David Morgan :

01:13:19.240 | No market too. Yeah. So we put those two things together. And then if this war is never ending

01:13:23.240 | and the famine that, and the impact on 40 million people or something like that,

01:13:28.120 | that Freeberg predicted is actually going to happen in the next six months.

01:13:31.400 | This is going to feel quite chaotic to people around the world. So we do need to put

01:13:36.280 | this war to bed for sure. Jason Lowery :

01:13:38.200 | There's no deal on the table right now, but the deal that we've talked about on previous shows,

01:13:42.200 | there was always the broad construct here, even before the war began was there were three pieces

01:13:48.600 | to it. Number one was that, that Ukraine had to remain a neutral state as opposed to

01:13:56.840 | being brought into NATO and having American troops, weapons, and bases

01:14:00.440 | on Russia's border. That was always a red line to them. And in exchange for neutrality, Ukraine would get

01:14:06.120 | security guarantees. Piece number two was that in the Eastern region, when you had these Russians,

01:14:11.240 | these Russian speakers, that their rights would be respected and that they would have some autonomy.

01:14:15.720 | And again, that was something that Ukraine agreed to under the Minsk Accords,

01:14:19.640 | but it was never properly implemented. And the third piece was that Russia got to keep

01:14:24.040 | Crimea, which again was a fait accompli that happened in 2014.

01:14:28.600 | Smart observers of this conflict have been outlining that three point plan for over a year.

01:14:34.440 | David Morgan : And that

01:14:35.960 | is what we're going to end up with. The only difference is that it's going to be implemented

01:14:39.880 | by force and Ukraine will be destroyed in the process. That is basically where we're at right

01:14:45.160 | now. Russia has, they've taken over the Donbas. They've taken over this Eastern 20% of the country.

01:14:51.320 | They have Crimea and Ukraine basically the rest of it will not be part of NATO.

01:14:57.640 | That is basically what the Russians have done is implement by force

01:15:01.160 | a plan that frankly we could have agreed to through negotiation,

01:15:05.800 | a year ago and avoided all this death and destruction.

01:15:08.520 | David Morgan : My, my calculation is maybe, I mean, we don't know Putin's intent and that's,

01:15:13.320 | that's the wild card here. He is a bit of a madman. I mean, he's pretty much of a wild card here. He's

01:15:17.400 | a dictator who invaded another country. Yeah.

01:15:20.360 | Jason Kuznicki : My, my calculus is slightly different. I think

01:15:22.920 | I see two things in order to get us back to a state of relatively predictable growth and

01:15:27.640 | price stability. Number one is we need to reset supply and demand by taking $30 trillion out of

01:15:35.320 | global markets.

01:15:35.640 | Jason Kuznicki : And then the second is we need an off ramp to this Ukraine,

01:15:39.240 | Russia war so that there is predictable energy and food supply to the world so that folks can

01:15:45.720 | just get back to what they do best. And if those two things can happen,

01:15:49.960 | then the markets will have found the bottom. But until those two things happen, in my opinion,

01:15:56.840 | and by the way, the first thing doesn't actually have to happen entirely. You just need to see a

01:16:01.160 | path for it. And you know, we're the only one that's doing quantitative tightening right now.

01:16:05.320 | The ECB hasn't even started taking all this crazy money out. You know, I don't know when the Bank of

01:16:11.160 | England is going to do it. When is the Bank of Japan going to do it? So this has to be a global

01:16:15.800 | coordinated effort before we find the bottom. And this war has to stop.

01:16:20.360 | Jason Kuznicki : Well, Jason, can I go back to this

01:16:23.080 | unpredictable madman narrative, Jason?

01:16:25.640 | Jason Kuznicki : Yeah.

01:16:26.360 | Jason Kuznicki : Look, if what you're trying to say here

01:16:30.600 | is that Putin bears moral culpability and moral responsibility, the blood is on his hands for

01:16:35.160 | this war. I agree with you on that. Okay. However, this idea-

01:16:38.200 | Jason Kuznicki : How could you not? I mean,

01:16:39.480 | he's the person who invaded. Yes. I mean, just logic there.

01:16:42.520 | Jason Kuznicki : Right. But the idea that this war was unpredictable or could not have

01:16:46.280 | been predicted is simply false because many experts did predict it. And they did tell us

01:16:51.560 | exactly what's going to happen. And the reason they knew it was going to happen is because

01:16:54.840 | Russia has been saying since at least 2008, when there was this Bucharest summit and NATO

01:17:00.280 | declared its intent to bring Ukraine into NATO, the Russians have been saying that is a red line.

01:17:05.000 | Jason Kuznicki : And Russia experts, Biden's own CIA director,

01:17:08.680 | a guy named Bill Burns, he was then our emissary to Russia. And he wrote a memo

01:17:13.880 | to then Secretary of State, Condoleezza Rice. And what he said is that the idea of bringing,

01:17:19.080 | expanding NATO to Ukraine was a red line for the entire Russian elite, not just Putin.

01:17:25.080 | Jason Kuznicki : And if you go back and look about what other

01:17:28.280 | Russian leaders said about NATO expansion, Gorbachev said it was a humiliation to Russia.

01:17:33.800 | Yeltsin was against it.

01:17:34.840 | Jason Kuznicki : They've all been against it. And so Bill

01:17:37.160 | Burns warned in 2008, this was a red line. And the Russians have been saying this since 2008.

01:17:42.360 | Jason Kuznicki : Yeah.

01:17:42.680 | Jason Kuznicki : And they were saying it all of last year. If you go

01:17:45.400 | look at contemporaneous headlines describing the tensions between the US and Russia,

01:17:51.880 | this is the headlines of articles I can provide to Nick, we can put on the screen.

01:17:55.880 | They were saying this was an absolute red line for them. So the idea that this conflict was

01:17:59.960 | unpredictable because Putin's a madman, listen, you can call him a dictator.

01:18:03.320 | Jason Kuznicki : Sachs, we can also,

01:18:04.680 | we can also predict.

01:18:05.560 | Jason Kuznicki : Highly predictable.

01:18:06.440 | Jason Kuznicki : Yeah. Okay. And you know, what's also highly predictable

01:18:08.920 | is that China considers, you know, Taiwan a renegade, you know, province like, yes, dictators,

01:18:16.360 | you know, will tell us what they're going to do. The question is, does the free world want

01:18:20.520 | to stand up to dictators? And so while, you know, it's messy to stand up to a dictator,

01:18:26.360 | the West, you know, kind of doesn't have a choice to stand up to dictators or else

01:18:30.680 | they will roll into other countries. History has shown that. So as messy as this is, and,

01:18:34.520 | and as terrible as it is for the economy, I do think that we have to stand up to dictators.

01:18:39.320 | Jason Kuznicki : There are plenty of dictators where we work with.

01:18:41.480 | Jason Kuznicki : Yeah, they're not invading other countries.

01:18:44.040 | They're not invading other countries. And that's the difference here, Sachs.

01:18:46.760 | Jason Kuznicki : But we could have avoided.

01:18:47.640 | Jason Kuznicki : You're giving Putin a bit of a pass here. He invaded the country.

01:18:51.000 | We must stand up to dictators who invade other countries.

01:18:54.280 | Jason Kuznicki : Well, look, look where you're standing up.

01:18:55.400 | Jason Kuznicki : I don't mean just America. I mean the free world.

01:18:57.880 | Jason Kuznicki : Yeah. Well, look, look where you've got us then with this policy,

01:19:01.480 | you and the people who, we could have avoided. Yeah, because you,

01:19:04.360 | Jason Kuznicki : You are basically spouting this, this nonsense that look,

01:19:09.160 | the question is,

01:19:09.800 | Jason Kuznicki : Stand up to dictators who invade other countries. I think you would agree.

01:19:12.280 | Jason Kuznicki : That's a good idea.

01:19:12.920 | Jason Kuznicki : Jake, let him talk.

01:19:13.800 | Jason Kuznicki : Let, let us discuss. Okay. Free bird.

01:19:15.960 | Jason Kuznicki : Okay. Listen, the, the, the, there's no question that Russia has been the

01:19:19.800 | aggressor, but the question is why did they do this? You don't really have a theory on that,

01:19:23.960 | Jason, except that you believe that on February 24th, Putin woke up and went nuts. That's basically

01:19:29.640 | your explanation.

01:19:30.360 | Jason Kuznicki : No, that's not,

01:19:30.840 | Jason Kuznicki : For what's happening in the world.

01:19:32.040 | Jason Kuznicki : The truth of the matter is.

01:19:33.000 | Jason Kuznicki : We know it's a debated, we know it's a debated region. We know that they've

01:19:35.880 | had this conflict for a long time. I'm not naive to that. We've discussed it here on the pod many

01:19:40.040 | times.

01:19:40.280 | Jason Kuznicki : Every, every president from Bill Clinton to Obama, who has dealt with Putin

01:19:45.800 | has written largely the same account of him in their memoirs, which is look, they know that he's

01:19:50.760 | a thug. They know that he's a dictator. However, they always said, they always said he's very

01:19:55.080 | businesslike. He's very direct. He told them what their issues were. Okay. Putin was very direct.

01:20:01.480 | Jason Kuznicki : He,

01:20:01.880 | and Biden had a summit in June of last year. The Russians have been very direct. Your

01:20:08.360 | attempt to bring Ukraine into NATO is a red line for us. Why? It's a violation of our security

01:20:14.280 | interests. The idea of bringing a country into NATO, it has huge security externalities for them.

01:20:20.200 | By the way, we understand this in other contexts.

01:20:22.600 | Jason Kuznicki : We understood in the, in the context of Cuban missile crisis, we didn't say

01:20:25.960 | that Cuba had the right to join any military alliance that it chose to, because we wouldn't be

01:20:31.720 | asleep as well as at night. If Cuba had nukes pointed at us with a first strike capability.

01:20:37.320 | Jason Kuznicki : We've had this conversation. Do you think

01:20:38.760 | Sweden and Finland be invited into NATO?

01:20:42.440 | Jason Kuznicki : I would table that issue until the war is over. I don't know why we need

01:20:46.520 | to basically deal with that right now, but listen, we didn't even have to go back to the Cuban missile

01:20:50.520 | crisis right now. Okay. There's a country called the Solomon islands about 3000 miles off the

01:20:56.040 | Australian coast. They entered into a deal with China security deal and the U S has been up in arms

01:21:01.560 | about that. So, you know, and the reason is we don't want China extending its footprint.

01:21:06.600 | In Asia. Okay. So we treat that deal as having a security externality for us. And yet we refused

01:21:14.440 | last year to recognize that there'd be any security externality for Russia. If we brought

01:21:19.800 | Ukraine into NATO, the Russians were abundantly clear about what they needed. So my point is,

01:21:25.000 | Jason Kuznicki :

01:21:26.440 | Yes. My point is this, that this war was easily avoidable through the use of diplomacy.

01:21:31.400 | Jason Kuznicki : The administration chose not to.

01:21:32.680 | Jason Kuznicki : You believe that you don't know that you believe that you don't know that

01:21:35.560 | you don't know that.

01:21:36.040 | Jason Kuznicki : We never even tried.

01:21:36.680 | Jason Kuznicki : We never even tried.

01:21:37.560 | Jason Kuznicki : You actually don't know that.

01:21:39.160 | Jason Kuznicki : You actually don't know that.

01:21:40.280 | Jason Kuznicki : It's worse than that, Jason, because here's what happened

01:21:43.160 | after the June 16th summit in Geneva between Putin and Biden last year. Okay.

01:21:47.880 | Putin tells Biden to his face, this is a red line as they've always said.

01:21:52.840 | So what does the administration do? Not only do they not negotiate with the Russians,

01:21:57.240 | they invite Zelensky to the white house on September 1st of last year.

01:22:01.240 | Jason Kuznicki : Hold on a second. Then on November 10th,

01:22:03.480 | they published a massive 10 year charter agreement. This was a huge finger in the eye

01:22:07.400 | to the Russians. And on the heels of that November 10th charter agreement, the Russians basically

01:22:12.200 | delivered an ultimatum to the US demanding a written guarantee that Ukraine not join NATO.

01:22:16.600 | And then in January, Blinken was tasked with negotiating with Lavrov and Blinken said there

01:22:21.800 | has been no change. There will be no change. NATO's door is open and will remain open.

01:22:26.360 | This administration was incredibly stubborn. They were absolutely refused to use diplomacy to

01:22:31.080 | defuse the crisis. Now you say, well, we can't know what it would have done. Well,

01:22:35.160 | but the point is they never tried.

01:22:37.880 | Mark Leary : Is Ukraine a sovereign country?

01:22:39.800 | Jason Kuznicki : Yeah, they are, but the point is-

01:22:41.400 | Mark Leary : Do they get to pick what they do in their fate?

01:22:43.240 | Jason Kuznicki : Look, this idea that there's a-

01:22:45.160 | Mark Leary : Do they get to pick their fate

01:22:46.600 | as a sovereign country? I think you would agree, yes. Okay.

01:22:49.960 | Jason Kuznicki : Well, here's the question is what you're trying to do and is create a

01:22:54.520 | doctrine. Okay. You're trying to create a new doctrine that a country gets to join whatever

01:23:00.520 | security alliance they want. Mark Leary : Well, that's a good point.

01:23:00.920 | Jason Kuznicki : Whatever military alliance they want. That is not a doctrine we believe in when

01:23:05.480 | it comes to the Solomon Islands. It's not a doctrine we believe in with respect to Cuba and

01:23:09.080 | the Cuban missile crisis. And the fact of the matter is, is that the nations of the world are

01:23:13.240 | engaged in security competition. And if a country like Ukraine joins a new military alliance that

01:23:20.760 | has huge externalities. And so we do not believe in that doctrine, Jason. This is a doctrine that

01:23:26.360 | did not exist until February. Jason Kuznicki : Wait, wait, we don't believe more

01:23:30.760 | people should be able to join NATO while Sweden and Finland are being-

01:23:33.480 | Mark Leary : No, we clearly believe that, but this, this doctrine that the countries of the

01:23:36.920 | world should be able to join whatever military alliance they want. That is not a, that is not,

01:23:41.400 | we do not practice that doctrine. That is not a doctrine we believe in.

01:23:43.880 | Jason Kuznicki : And your example is Cuba.

01:23:45.080 | Mark Leary : Cuba and then more recently the Solomon Islands.

01:23:47.880 | Jason Kuznicki : Okay. Yeah. I mean, listen, I, I, I'm not saying this war

01:23:51.320 | is not a mess. All wars tend to be a mess. I'm not saying we shouldn't try to resolve it with

01:23:55.480 | everything we have. I do think the people of the Ukraine, you know, get to pick their fate and I am

01:24:00.600 | in support of them picking their fate. And I am in support of the, of NATO being stronger and

01:24:05.240 | stronger and I'm in favor of isolating Putin, you know, and using diplomacy as the primary tactic

01:24:10.760 | to do that and making sure he doesn't run over countries because he won't stop at one. I think

01:24:15.800 | that's the, the big question I think is, will he stop at one? Do you think he'll stop at one country?

01:24:19.960 | Jason Kuznicki : Listen, if-

01:24:20.840 | Mark Leary : History has proven he won't.

01:24:22.200 | Jason Kuznicki : You just said-

01:24:23.160 | Mark Leary : At what point are you okay with stopping him?

01:24:25.080 | Jason Kuznicki : Listen, you, you just said that you want to use

01:24:28.440 | diplomacy as the primary tactic. Okay.

01:24:30.440 | Mark Leary : So we agree on that. The question is what you're willing to give up

01:24:33.320 | because the administration was not willing to engage on the key Russian concern,

01:24:37.160 | which is the admission-

01:24:38.040 | Jason Kuznicki : Let me ask you one question.

01:24:39.000 | Mark Leary : Of Ukraine into NATO.

01:24:39.960 | Jason Kuznicki : Do you think Russia will stop

01:24:41.240 | with Ukraine or Donbas? Do you think that's actually the stopping point for Putin?

01:24:46.040 | Mark Leary : Listen, I think there's a few ways to come at that question.

01:24:48.600 | One is to ask what is their motivation, which is very hard to know because it's inside Putin's head.

01:24:52.680 | Okay. So the second is what are their interests and the third is what are their capabilities?

01:24:57.000 | The capabilities question is pretty easy to answer. I mean,

01:25:00.280 | Jason Kuznicki : they have had a very hard time

01:25:02.520 | winning this war. They've won this Eastern region of the Donbas because I think

01:25:06.920 | Mark Leary : Why is that? Why did they have a hard time?

01:25:09.160 | Jason Kuznicki : Well, because their military capabilities are obviously not as

01:25:12.760 | great as people thought and the NATO's- Mark Leary : And Ukraine got a lot of weapons

01:25:16.760 | from the West.

01:25:17.320 | Jason Kuznicki : From NATO. Exactly. So this idea, listen, I've said it before. The EU's

01:25:22.760 | GDP is 10 times greater than Russia's and you know, economic strength is the foundation for

01:25:29.400 | military strength. Mark Leary :

01:25:30.120 | Moreover, we've seen that these NATO weapons are incredible. The US's weaponry. I mean, it's-

01:25:35.800 | Jason Kuznicki : So you're in support of providing weapons to Ukraine,

01:25:37.800 | NATO, the EU, European countries, America, the West.

01:25:41.720 | Jason Kuznicki : I'm not in favor of creating a forever war

01:25:44.680 | in Eastern Europe. That is basically what's in the cards.

01:25:47.240 | Mark Leary : No, none of us are. Nobody wants that.

01:25:47.560 | Jason Kuznicki : Well, but the question is, Jason,

01:25:49.240 | you just said that we have to isolate Putin. We have to deprive him of any,

01:25:53.160 | of any positive outcome from this war. So you are supporting-

01:25:55.800 | Mark Leary : No, no, no. I didn't say that. I said we have to stop him from evading countries.

01:25:58.360 | Jason Kuznicki : Well, we-

01:25:59.240 | Mark Leary : That's what I mean. Stop him from

01:25:59.960 | invading more countries that are- Jason Kuznicki :

01:26:02.360 | He's not going to invade NATO countries because he's so outmatched.

01:26:04.600 | Mark Leary : Well, not NATO, but I mean, there's a lot of countries that are not in NATO. So,

01:26:07.320 | I mean, I think that's the thing. But I mean, listen, we discussed this a million times here.

01:26:10.520 | I think we both agree we want the war to end. I think we might just have a different view of-

01:26:13.720 | Jason Kuznicki : The question is, what are you willing to do to end the war?

01:26:16.680 | And, you know, my point is this, that the deal-

01:26:19.480 | Mark Leary : The question is, what is Putin willing to do in terms of starting wars and

01:26:22.520 | invading other countries? And what does the West have to do to react to that? You know, I think

01:26:25.960 | that's what we're talking about here. We didn't start this war, you know? But anyway, let's move

01:26:30.120 | on. I think- Jason Kuznicki :

01:26:30.760 | Well, hold on a second. We may not have started this war, but we failed to prevent it through the

01:26:34.280 | use of diplomacy. That's always been my point. I think this war-

01:26:37.240 | Mark Leary : It may be out of our control.

01:26:38.600 | Jason Kuznicki : I think this war was easily preventable

01:26:40.920 | if we had listened and engaged in diplomacy. Mark Leary :

01:26:42.360 | Easily? Jason Kuznicki :

01:26:43.560 | Easily. Yes. Mark Leary :

01:26:44.600 | Okay. I'm not sure that's what- Jason Kuznicki :

01:26:47.320 | Let me just tell you right now, the deal that would end this war is the same deal that was

01:26:50.760 | on the table last year with zero bloodshed, which is Ukraine remains a neutral state,

01:26:55.880 | there is autonomy for the Russian speakers in the Donbas, and Crimea basically remains part of

01:27:02.440 | Russia. That was the deal, that is the deal, that will be the deal. The only question is,

01:27:07.960 | does the whole country have to be destroyed? Mark Leary :

01:27:09.560 | All right. Well, we're going to find out in the coming months.

01:27:12.280 | Jason Kuznicki : And does the world have to go through a

01:27:14.040 | global recession and famine? Mark Leary :

01:27:15.560 | These are big questions. Yeah. It's not- the sacrifice it takes to stand up to dictators

01:27:20.200 | is very significant. And especially ones with nuclear bombs. And it will be even worse with

01:27:25.160 | Taiwan. Jason Kuznicki :

01:27:25.760 | Yeah. Mark Leary :

01:27:25.800 | Yeah. Jason Kuznicki :

01:27:25.800 | Yeah. Mark Leary :

01:27:25.860 | I mean, if we think that this is difficult, can you imagine this kind of escalation with a capable

01:27:31.140 | adversary if Russia is not super capable and their weapons turned out to not be as strong?

01:27:36.180 | My God, what would Taiwan look like? Jason Kuznicki :

01:27:38.100 | Did you guys read this story where it was the deputy foreign minister got demoted?

01:27:43.700 | Jason Kuznicki : Yeah.

01:27:44.260 | Mark Leary : And there was all this speculation, like,

01:27:48.260 | why did he get demoted? And one of the things that came out was that he was very, very pro-Russian,

01:27:55.780 | and he was very much a supporter of the Chinese government. And he was very much a supporter of the

01:28:00.900 | Chinese government. And he was very much a supporter of the Chinese government. And he was very much a

01:28:03.700 | supporter of the Chinese government, and he was very much a supporter of the Chinese government. And

01:28:05.940 | so he was very much a supporter of the Chinese government, and he was very much a supporter of the

01:28:07.540 | Chinese government. And he was very much a supporter of the Chinese government. And he was very much a

01:28:08.420 | supporter of the Chinese government. And he was very much a supporter of the Chinese government. And

01:28:09.220 | he was very much a supporter of the Chinese government. And he was very much a supporter of the Chinese

01:28:11.300 | government. And he was very much a supporter of the Chinese government. And he was very much a supporter of the Chinese government.

01:28:11.700 | the strength between basically China and Russia is infinite. But that was that was a quote that

01:28:16.660 | he said that was a little bit off the reservation, it seems. And so yeah, yeah, yeah, yeah.

01:28:22.140 | Now, there's an important story as well. I mean, and you know, it's one of the things that we can

01:28:26.700 | look at what's happening in these political situations. I think we probably have 50 60 70%

01:28:30.620 | of the information not even not even really quick. Tell us what's going on in alpha fold world

01:28:35.620 | sultan of science. There was a paper published about two weeks ago in the journal science.

01:28:39.780 | It's actually an important paper because it used alpha fold to do some really important work. And

01:28:47.440 | the work is to actually create a 3d structure 3d model of the nuclear pore complex. And that

01:28:56.380 | nuclear pore complex is really the scaffolding that makes up the nucleus of a cell. So all

01:29:03.840 | eukaryotes, you know, all plants and animals have a nucleus in ourselves, and the nucleus holds the

01:29:09.540 | DNA.

01:29:09.760 | And the big question,

01:29:11.760 | free birds internet connection is getting bored.

01:29:14.080 | Just let him finish his sentence. Did it break up? Yeah, you're fine. Keep going.

01:29:22.800 | No, your internet connection fell asleep because it was so boring. What you're talking about?

01:29:26.720 | Keep going. So what does this mean in terms of

01:29:29.760 | Well, hold on. So, so what this team did, and this is a the problem that's kind of been

01:29:36.320 | around for decades, is we've never really understood

01:29:39.520 | what the physical structure of the nucleus in a cell looks like. And this is important because

01:29:45.200 | the physical structure regulates how molecules get into and out of the nucleus, and how DNA is

01:29:51.600 | expressed and how the RNA that comes out of the DNA goes into the rest of the cell. And this

01:29:56.000 | regulates so much of human health. In fact, it's been shown and demonstrated that dysfunction in

01:30:01.920 | the nuclear pores, or the nuclear pore complex in the cell can lead to things like viral infection,

01:30:08.800 | brain injury, and so on. And so, you know, we've been talking about this for a long time. And so,

01:30:09.280 | we've been talking about this for a long time. And so, we've been talking about this for a long time.

01:30:10.240 | Cancers, cardiovascular disease, many diseases, their underlying driver may result from dysfunction

01:30:17.840 | in the transmission of molecules into and out of the nucleus of the cell. And so, scientists have

01:30:24.000 | always tried to figure out what does that transport mechanism look like? What does that

01:30:27.600 | infrastructure look like? And so, for the first time, and scientists have published

01:30:33.600 | theories on this, and they've shown using x ray imaging, you know, some theory around

01:30:39.040 | what these complexes look like. And what this team at Harvard did that they published two weeks ago,

01:30:45.680 | is a really groundbreaking, extremely detailed view of the entire nuclear pore complex around

01:30:53.120 | the nucleus of the cell by combining both x ray imaging and alpha fold. And so, what they did is

01:31:00.080 | they took the predicted physical structure of those proteins from alpha fold and use that to

01:31:06.560 | construct a sample of what the X-ray imaging is. And so, what they did is they took the physical

01:31:08.800 | structure of those proteins from alpha fold and use that to construct a sample of what the, you know,

01:31:09.280 | the nuclear pore complex looks like. How do they know it's accurate?

01:31:11.600 | And so, using this x ray imaging, they've been able to kind of verify some of the assumptions

01:31:16.560 | on alpha fold yields. And now they've created this 3D model. And this 3D model now gives, and by the

01:31:22.320 | way, just to think about this physically, what it means like for a second, the nuclear pore complex,

01:31:27.440 | think about it as like a fence, like a spherical fence that sits around the nucleus. And some parts

01:31:32.720 | of that fence open and close, some parts are static. And the way that certain things open and

01:31:37.840 | close and what can fix that, that's what we're going to talk about in this talk. And so,

01:31:38.560 | we're going to talk about how we can fit through them and how they fit through and how stuff gets

01:31:40.640 | stuck. It's really important to understand as a way to both understand the underlying cause of

01:31:46.560 | diseases like cancer, but also how we can create therapeutics and how we can target specific things

01:31:52.080 | that we can fix and how we can get molecules into the nucleus of the cell to regulate DNA

01:31:57.840 | expression and edit the DNA inside of cells. That's mind blowing. So wait, if I were to

01:32:01.040 | translate this from nerd, basically alpha fold predicted, no, I'm being sincere. There's a map

01:32:07.600 | here that we've been able to get into the nucleus of the cell. And so, we're going to get molecules

01:32:08.320 | into the nucleus of the cell that we were not able to see through x-rays and through, you know,

01:32:11.600 | physics. But alpha fold predicted some of that and filled in the gap. So now we have the map

01:32:17.360 | has been filled. That's a great, that's a great way to describe it. And so, now we have this

01:32:21.040 | incredibly detailed 3D image and Nick can share the images on our YouTube stream here of what the

01:32:27.680 | nuclear pore complex looks like and how each of those pores work. How do they open and close?

01:32:32.480 | What's the structure of them? This isn't simply like a circle. This is like all these weird

01:32:36.880 | tentacles and little things that are in the nucleus. And so, we're going to get those pores

01:32:38.080 | in and out of the nucleus. And so, we're going to get those things sticking out. And that can help

01:32:39.760 | us predict what molecules get stuck and how one error in one of those proteins can cause things

01:32:45.360 | to get stuck. Like a cancer or something like that. Yeah. How this can cause certain DNA to

01:32:49.760 | be overexpressed or underexpressed, causing things like cancer. So, we're going to live forever.

01:32:54.240 | A whole new area of research in medicine, gene therapy, and new things that we can think about

01:33:00.320 | targeting to fix a lot of these underlying diseases. And so, this was a groundbreaking paper.

01:33:05.120 | Incredible. What's the name of the paper? Can we just get the name of the paper so people can

01:33:07.840 | Google it? We'll put it in the show notes as well. It's been an amazing episode.

01:33:11.120 | The name of the paper is, yeah, so it's a team out of Harvard. We'll send the link in the show

01:33:14.800 | notes. Structure of cytoplasmic ring of nuclear pore complex by integrative cryo-EM and alpha-fold.

01:33:20.240 | Terrible naming, not for the general audience. No, no, it's okay. Sachs is printing it out

01:33:25.040 | right now and he's going to use it for his new kittens in the box.

01:33:29.120 | I just want to highlight, because we talked about alpha-fold, I think last year or the year before,

01:33:33.200 | and how it was going to open up all these new areas of research.

01:33:35.600 | And here we are a year later. This is an incredible example.

01:33:37.600 | Amazing. Of how alpha-fold's been used to solve this really misunderstood or never really well

01:33:43.280 | understood aspect of biology that is at the root cause of so much of disease and creates all this

01:33:48.640 | opportunity for medicine and therapeutics, research and discovery. It's great to see this breakthrough.

01:33:54.560 | Sorry we didn't get to January 6th or Roe v. Wade. We'll get to those the next episode.

01:33:58.720 | No, no, no. Listen, I think Roe v. Wade, I'm not sure there's, I mean, we could do something

01:34:03.440 | about the reactions, but we did a pretty thorough episode. So, if folks really want us to double-click,

01:34:07.360 | we double-clicked with two of the most prolific constitutional experts in the space when it first

01:34:13.200 | got leaked. So please go and watch or listen to that. Which episode is that number? I don't know

01:34:18.720 | which. We'll put it in the show notes. It'll be in the show notes for everybody. And we'll see you

01:34:21.760 | all next time. Bye-bye. Bye-bye. Bye-bye. Love yourselves.

01:34:25.920 | We'll let your winners ride.

01:34:28.880 | Rain Man, David Sack.

01:34:31.680 | And instead we open source it to the fans and they can watch it live.

01:34:37.120 | And they've just gone crazy with it.

01:34:38.560 | I love you, West.

01:34:39.680 | I'm the queen of Kinwa.

01:34:40.880 | I'm going all in.

01:34:42.480 | What your winners ride?

01:34:43.840 | What, what your winners ride?

01:34:45.200 | What your winners ride?

01:34:47.760 | Besties are gone.

01:34:48.800 | Go 13.

01:34:49.440 | That's my dog taking a notice in your driveway.

01:34:52.480 | Sex.

01:34:52.960 | Wait, no, no.

01:34:53.600 | Oh, man.

01:34:56.160 | My avatars will meet me at .

01:34:58.160 | We should all just get a room and just have one big huge orgy because they're all just

01:35:01.440 | used to this. It's like this like sexual tension that they just need to release somehow.

01:35:04.880 | What your winners ride.

01:35:06.880 | What your winners ride.

01:35:09.280 | Where the beat.

01:35:10.320 | What your beat.

01:35:11.920 | We need to get merch.

01:35:14.800 | Besties are back.

01:35:16.800 | We need to get merch.

E85: SBF's crypto bailout, Zendesk sells for ~$10B, buyout targets, US diplomacy, AlphaFold & more

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